What you can (and can’t) invest in through an SMSF

Self-managed super funds (SMSFs) often attract attention because they offer something many investors value: control. Instead of relying on a large super fund to make investment decisions on your behalf, an SMSF allows you to manage and direct how your retirement savings are invested.

That level of control is appealing. But it comes with significant responsibility. SMSFs operate within a strict regulatory framework and there are clear rules around what you can and cannot invest in.

Understanding both the flexibility and the limitations of an SMSF is essential before deciding whether this structure is right for you.

What is an SMSF?

An SMSF is a private superannuation fund that you manage yourself. In most cases, the members of the fund are also the trustees, which means they are responsible for running the fund and making investment decisions.

SMSFs can have up to six members. Trustees are responsible for ensuring the fund complies with superannuation law, managing administration and reporting obligations, and making sure the fund has a documented investment strategy.

One of the most important rules governing SMSFs is the sole purpose test. This requires the fund to exist solely to provide retirement benefits to its members. Every investment made by the fund must support that purpose.

What you can invest in through an SMSF

SMSFs generally offer a broader range of investment opportunities than many traditional super funds. However, investments must align with the fund’s strategy and be conducted on an arm’s-length basis.

Shares and managed investments

Many SMSFs invest in Australian and international shares, as well as managed funds and exchange-traded funds (ETFs). These investments can provide exposure to different markets, sectors and asset classes.

Cash and fixed interest

Cash accounts, term deposits and fixed interest investments are also commonly held in SMSFs. These assets can provide stability and income while supporting portfolio diversification. You can often have the security of a government guarantee of up to $250,000 per bank for deposits.

Property

Direct property is one of the most widely discussed SMSF investments. Trustees can invest in residential or commercial property, provided the investment aligns with the fund’s strategy and complies with superannuation rules.

In some cases, business owners may purchase commercial property through their SMSF and lease it to their business, as long as the arrangement is conducted in line with market rates.

Certain alternative assets

SMSFs may also invest in some alternative assets, such as cryptocurrencies or collectibles. However, these investments come with strict conditions. For example, collectibles must be stored appropriately and cannot be used or displayed by fund members.

What you can’t invest in through an SMSF

Despite the wide range of investment options available, SMSFs are not a free-for-all. There are several restrictions designed to ensure the fund remains focused on retirement savings rather than providing personal benefits.

Assets for personal use

SMSF assets cannot be used personally by members or their relatives. For example, artwork purchased through an SMSF cannot be displayed in a member’s home, and a collectible vehicle cannot be driven by a trustee.

Residential property for family members

If an SMSF purchases residential property, it cannot be rented to members of the fund or their relatives. The investment must remain at arm’s length and operate like a standard commercial arrangement.

Loans to members or relatives

Superannuation rules prohibit SMSFs from lending money to members of the fund or their family members. The fund’s assets must remain dedicated to building retirement savings.

Non-arm’s-length transactions

There are also restrictions on purchasing assets from related parties. While limited exceptions exist, most investments must be conducted with unrelated parties to ensure the fund operates independently and within regulatory guidelines.

The potential benefits of investing through an SMSF

For the right individuals, SMSFs can provide several advantages.

One of the most significant benefits is control. Trustees have direct oversight of how their super is invested and can tailor strategies to suit their financial goals and risk preferences.

SMSFs can also provide greater transparency. Trustees can see exactly where returns are coming from, whether that’s rental income, dividends or capital growth.

In some cases, SMSFs can also support strategic opportunities for business owners, particularly where commercial property is involved.

The risks and responsibilities

While SMSFs offer flexibility, they also come with responsibilities that shouldn’t be underestimated.

Trustees are responsible for ensuring the fund complies with superannuation legislation. This includes maintaining records, lodging annual returns and arranging independent audits. There are also ongoing administrative tasks that must be managed.

Costs can also be a factor. For people with smaller super balances, the expenses associated with running an SMSF may outweigh the potential benefits.

In the event of the death of a trustee/member, you need to ensure your SMSF and estate planning documents are up to date and reflecting your wishes to ensure your estate is handled in accordance with your wishes.

Finally, trustees are responsible for the investment decisions made within the fund. This means the risks, as well as the outcomes, ultimately sit with the trustee. In the case of a couple, both of them need to be across the role and responsibilities of running an SMSF as they are both equally responsible.

The role of advice

SMFs can be a powerful tool for managing retirement savings, but they are not suitable for everyone.

The decision to establish an SMSF should take into account your financial circumstances, your willingness to take on administrative responsibilities and your long-term retirement goals.

Because SMSFs operate in a highly regulated environment, professional advice can play an important role in ensuring the structure is set up and managed appropriately.

A financial adviser can help assess whether an SMSF is suitable for your situation, develop an investment strategy and provide ongoing guidance as your circumstances evolve.

Get in touch to speak with an Apt adviser about whether an SMSF is the right option to help you meet your retirement goals.

General Advice Warning

The information provided in this blog does not constitute financial product advice or a recommendation to purchase a particular product. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners Pty Ltd is not a registered Tax Agent. You should consider your individual situation and seek tax advice from a registered tax agent before making any decision based on the content of this document. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.