To stay compliant with super laws, your fund needs to meet a range of tests and ongoing administrative requirements. Here are some of the most important.
Sole purpose test
Your SMSF's investments must have one purpose and one purpose only: to provide benefits to members upon their retirement (or death benefits, if they die before all of their super has been paid out).
Related party transactions
SMSF funds must not transact with other members, relatives or entities of the fund. There is a limited exception to this rule for SMSFs investing in commercial properties owned by a related party such as a business. But this is a complex area, so professional advice is essential.
In house assets
An in house asset is a loan, investment or lease involving a related party. SMSFs are restricted from lending to or investing more than 5% of the fund's total asset in an in-house asset. (Again, there are exceptions for business property investments.)
Arm's length transactions
All of the fund's transactions must be carried out at arm's length, with all investments made on a strict commercial basis, reflecting the true market value of each asset.
Borrowings and security
While SMSFs can borrow to invest, there are strict rules about the kinds of loans they can use. Generally, SMSFs can only use limited resource loans secured by individual assets, such as investment properties, so that the lender has no claim over the wider assets of the fund. Again, it's important to seek professional advice before you borrow.
As a fund trustee, you must prepare and implement a written investment strategy for your fund. All of your fund's investments must comply with your strategy, and your strategy must be reviewed regularly to make sure it continues to meet members' needs.