If you are asking what should I do with my SMSF, the short answer is this: focus on a diversified, compliant investment strategy that aligns with your fund’s sole purpose of providing retirement benefits. That means reviewing your trust deed, understanding current asset allocation rules, and deciding whether direct property, shares, cash, or alternatives best suit your members’ circumstances. The sections below break each of those decisions into practical, evidence-based steps.

What Are the Core ATO Rules That Govern What You Can Do With Your SMSF?

Before choosing where to invest, trustees must understand the regulatory framework. According to the Australian Taxation Office (ATO), there are more than 616,000 SMSFs in Australia holding a combined $876 billion in assets as at June 2024. That scale means the ATO scrutinises fund behaviour closely, and the penalties for non-compliance can be severe, including fund disqualification and tax rates of up to 45 per cent on non-complying funds.

The key rules every trustee must satisfy include:

• Sole purpose test: The fund must be maintained solely to provide retirement benefits (or death benefits) to members. Any investment that provides a present-day benefit to a member or related party breaches this test.
• Investment strategy requirement: Trustees must formulate, implement, and regularly review a written investment strategy that considers risk, return, liquidity, and diversification.
• In-house asset limit: No more than 5 per cent of a fund’s total assets may be invested in in-house assets (loans to, or investments in, related parties).
• Arm’s length dealings: All transactions must be conducted on commercial terms, at market value.
• Liquidity: The fund must hold sufficient liquid assets to pay member benefits, expenses, and tax obligations as they fall due.

Failing any one of these obligations can trigger an ATO audit, administrative penalties, or, in serious cases, the making of a non-compliance determination. Reviewing your investment strategy at least annually, and documenting that review in trustee minutes, is one of the simplest ways to stay on the right side of the ATO.

How Should You Allocate SMSF Assets After the Borrowing-Ban Debate?

The proposed ban on Limited Recourse Borrowing Arrangements (LRBAs) has been debated by successive governments but, as at mid-2026, LRBAs remain available for SMSFs under strict conditions. However, the ongoing policy uncertainty has prompted many trustees to reconsider how much of their fund should rely on borrowed funds at all.

ATO statistics show that at June 2024, property represented roughly 15 per cent of all SMSF assets by value, with listed shares and managed funds making up a further 30 per cent. Cash and term deposits accounted for approximately 17 per cent. A well-structured SMSF typically balances across several of these asset classes rather than concentrating heavily in any single one.

A practical post-borrowing-debate allocation framework might look like this:

1. Core growth assets (50-70%): Direct property, listed equities, listed investment companies (LICs), and exchange-traded funds (ETFs).
2. Defensive assets (20-35%): Fixed interest, term deposits, bonds, and cash for liquidity.
3. Alternatives (5-15%): Infrastructure, commodities, or specialist sectors such as SMSF agribusiness investment, which can provide income streams uncorrelated to equities and residential property cycles.

The right split depends on member ages, pension versus accumulation phase ratios, and overall retirement time horizons. A 45-year-old accumulating member can afford more growth risk than a 67-year-old drawing a pension.

Is Direct Property Still a Viable Strategy for Your SMSF?

Despite the borrowing debate, direct property remains one of the most popular SMSF asset classes in Australia. CoreLogic data indicates that Australian commercial property has delivered average total returns of around 8-10 per cent per annum over the past decade, while residential property in capital cities has averaged 6-8 per cent in capital growth over the same period, depending on the market.

For SMSFs, commercial property often presents a more straightforward compliance path than residential. A business owner can lease a commercial premises to their own business through the SMSF (a business real property arrangement), provided the lease is at market rent and documented properly. Residential property, by contrast, cannot be leased to a related party under any circumstances.

Before purchasing property inside your SMSF, there are several critical questions to answer:

• Does the purchase fit your fund’s written investment strategy?
• Will the fund retain sufficient liquidity after settlement to meet ongoing obligations?
• If borrowing is involved, does the LRBA structure comply with ATO safe harbour guidelines (PCG 2016/5)?
• Are all parties aware of the SMSF property investing rules that govern repairs, improvements, and titling of the asset?

Trustees who have not yet explored residential property as part of their fund’s strategy may find useful guidance in a dedicated review of SMSF residential property investment, including the compliance steps required from contract to settlement.

What Should You Do If Your SMSF Already Holds a Borrowing Arrangement?

If your fund currently holds an LRBA, the key question is whether to pay it down, refinance, or hold to term. According to ATO compliance data, the most common issue identified in SMSF LRBA audits relates to non-commercial loan terms, particularly interest rates below the ATO safe harbour benchmarks and missing or incomplete loan agreements.

The ATO’s safe harbour rates for June 2025 were set at the RBA indicator lending rate plus 2 per cent for real property loans. If your LRBA terms fall outside those benchmarks, the ATO may determine that the fund has received a non-arm’s length income (NALI) benefit, which is taxed at 45 per cent rather than the standard 15 per cent fund tax rate.

Practical steps to take if you hold an existing LRBA:

1. Have your SMSF auditor or accountant confirm the loan terms sit within current ATO safe harbour guidelines.
2. Review the bare trust (custodian trust) deed to ensure it correctly names the trustee and the asset.
3. Check that property improvements (as distinct from repairs) have not been funded through the LRBA, as this is a common breach that auditors flag.
4. Document trustee minutes each year confirming the investment strategy still supports holding the leveraged asset.

If the policy environment shifts and LRBAs are restricted or banned for new arrangements, existing LRBAs are likely to be grandfathered. However, it would be prudent to model fund cash flows under a scenario where the borrowing must be repaid or refinanced at shorter notice than anticipated.

How Do You Plan for SMSF Exit, Death Benefits, and Estate Considerations?

Many trustees focus on the accumulation phase and overlook what happens to the fund’s assets when a member retires, loses capacity, or dies. According to the ATO, binding death benefit nominations (BDBNs) are one of the most frequently contested areas in SMSF disputes, with disputes often arising because nominations were allowed to lapse (non-lapsing BDBNs must be specifically enabled in the trust deed) or because the deed was not updated after a relationship change.

Key estate planning steps for SMSF trustees include:

• Confirm whether your trust deed supports non-lapsing binding death benefit nominations.
• Review nominations after any major life event: marriage, divorce, birth of a child, or death of a co-trustee.
• Understand the interaction between superannuation law and your personal will. Superannuation does not automatically form part of a deceased estate unless directed to the estate by a valid BDBN.
• Consider the liquidity implications of holding illiquid assets (such as direct property) when a member death triggers an obligation to pay a death benefit, particularly where remaining members cannot or do not wish to buy out the deceased member’s interest.

For a detailed treatment of how property assets interact with member death events, the guide on SMSF death benefits and property covers the practical and legal steps trustees need to take before and after a member passes.

When Should You Seek Professional SMSF Advice?

The ATO requires that any person who provides financial product advice about SMSFs holds an Australian Financial Services (AFS) licence or is an authorised representative of one. Accountants who provide advice beyond factual information about SMSF structures similarly need to hold or operate under an AFS licence since the accountants’ exemption was removed in 2016.

You should seek licensed financial advice when:

• You are setting up a new SMSF and need a written investment strategy reviewed.
• You are contemplating a large single-asset purchase such as direct property that will represent more than 50 per cent of fund assets.
• A member is approaching retirement (age 60-65) and the fund needs to transition from accumulation to pension phase.
• A life event (divorce, death, incapacity) creates an immediate need to review member balances and benefit payment obligations.
• You are unsure whether a proposed transaction satisfies the arm’s length or sole purpose requirements.

A specialist SMSF property adviser can sit alongside your accountant and financial planner to handle the property-specific due diligence: selecting the right asset, structuring the contract correctly, managing the settlement process, and ensuring ongoing compliance with the fund’s investment strategy.

Whether you are just starting out with an SMSF or managing a mature fund with multiple assets, the most important step is to treat it with the same discipline you would apply to any serious investment portfolio. Review your strategy annually, keep your documentation current, seek licensed advice before major transactions, and make sure every decision can be justified under the sole purpose test. At Collings Real Estate, our team has helped hundreds of SMSF trustees find, assess, and acquire compliant investment properties. Contact us today to discuss how direct property could fit your fund’s next chapter.