Most SMSF breaches that auditors report aren't fraud or recklessness. They're a family fund doing something that would be perfectly normal outside super: lending a bit of money to the family company, investing in a unit trust with a brother-in-law, letting a relative rent the investment unit. Inside super, those dealings run into two rules that sit side by side: the in-house asset rules (sections 69 to 85 of the SIS Act) and the ban on acquiring assets from related parties (section 66).
This guide explains both, starting with the question they share: who is a related party? It's general information about the law. Whether a particular investment suits your fund is a financial product question for a licensed financial adviser. We do the accounting, tax and compliance work, and check these rules every year before the auditor does.
Who is a related party of an SMSF?
The SIS Act defines it in section 10(1), using the "Part 8 associate" tests in sections 70B to 70E. A related party of your fund is:
- Every member of the fund.
- Every standard employer-sponsor of the fund: an employer that contributes under an arrangement with the trustee.
- Every Part 8 associate of a member or a standard employer-sponsor.
Who is a Part 8 associate?
| Category | Who it covers |
|---|---|
| Relatives | A member's spouse (including de facto), parents, grandparents, brothers, sisters, uncles, aunts, nephews, nieces, lineal descendants (children, grandchildren) and adopted children, of the member or of their spouse, and the spouses of any of those people |
| Business partners | Anyone the member is in partnership with, and that partner's spouse and children |
| Controlled trusts | A trust where the member and their associates control it. For a discretionary trust, if they are beneficiaries or the trustee acts on their wishes. For a unit trust, if they hold more than 50% of the fixed entitlements, can remove or appoint the trustee, or the trustee is accustomed to act on their wishes |
| Controlled companies | A company where the member and their associates hold more than 50% of the voting power, or the company or its directors are accustomed or obliged to act on their wishes |
| Other members of the fund | In a family fund, each member is generally an associate of the others |
Two practical points:
- Count wider than your immediate family. Your spouse's nephew is a relative. So is your sister's husband.
- Control can be informal. A company where you hold 40% of the shares can still be a related party if its directors are accustomed to doing what you and your associates want.
What is an in-house asset?
Under section 71 of the SIS Act, an asset of the fund is an in-house asset if it is:
- a loan to a related party,
- an investment in a related party (for example, shares in a related company),
- an investment in a related trust (for example, units in a unit trust controlled by members and their associates), or
- an asset subject to a lease or lease arrangement between the trustee and a related party.
What isn't an in-house asset
Section 71 and the regulations carve out several important exceptions. These include:
| Excluded asset | What it means in practice |
|---|---|
| Business real property leased to a related party under a legally binding lease | The fund can own your business premises and lease them to your company. See our business real property guide |
| Units or shares in a non-geared related unit trust or company that meets regulation 13.22C | The fund can co-invest with family above 5%, if every condition is kept. See our 13.22C unit trust guide |
| A deposit with a bank or other authorised deposit-taking institution | Ordinary bank accounts and term deposits |
| A life insurance policy (other than one acquired from a member or a relative) | Insurance held by the fund |
| An investment in a widely held unit trust | Public unit trusts, such as many managed funds |
| An asset held on trust under a compliant LRBA | The bare trust arrangement itself doesn't make the asset an in-house asset, though leasing it to a related party still can |
| Certain investments and leases from before 11 August 1999 | Transitional rules, with conditions |
Key point: The exceptions are narrow and conditional. Business real property must be used wholly and exclusively in a business and leased under a binding lease. A 13.22C trust must meet every condition, every day. Lose the condition and the asset is in-house again.
How does the 5% in-house asset limit work?
The test compares the market value of all the fund's in-house assets with the market value of all the fund's assets. There are two parts.
- When acquiring (section 83). The trustee must not acquire an in-house asset if the fund is already over 5%, or if the acquisition would take it over 5%.
- At 30 June (section 82). If the fund's in-house assets are more than 5% of its total assets at the end of a financial year, the trustee must prepare a written plan, before the end of the next financial year, to reduce them to 5% or less, and must carry the plan out.
Worked example: how a fund ends up over 5%
Example only, with round numbers. Say an SMSF has $2,000,000 of assets. In August it lends $90,000 to the members' trading company on commercial terms.
| Date | Total fund assets | Loan to related company | In-house assets as % of fund |
|---|---|---|---|
| August (when the loan is made) | $2,000,000 | $90,000 | 4.5%: allowed |
| 30 June (share markets fall) | $1,700,000 | $90,000 | 5.3%: over the limit |
At 30 June the fund is over 5%, even though nothing new was done. The trustees must:
- not acquire any more in-house assets while over the limit,
- prepare a written plan before 30 June the following year to get back to 5% or less (for example, by having the company repay $5,000 or more of the loan), and
- carry the plan out by that date.
The auditor will report the breach to the ATO if the plan isn't prepared and carried out in time. Also note: a loan to a related company is allowed within the 5% limit, but it must be on arm's length terms, with interest actually paid. A cheap loan creates its own problems.
Can my SMSF buy assets from me or a related party?
Generally no. Section 66 says the trustee must not intentionally acquire an asset from a related party of the fund. "Acquire" includes taking an asset in as a contribution (an "in specie" contribution), so a member transferring an asset into the fund is caught as well as a sale.
The main exceptions, all at market value:
| Asset | Can the fund acquire it from a related party? |
|---|---|
| Listed shares and other securities listed on an approved exchange | Yes, at market value |
| Business real property | Yes, at market value |
| Units in a widely held unit trust | Yes, at market value |
| An in-house asset, if the acquisition doesn't take the fund over 5% | Yes, at market value |
| Units or shares in a 13.22C non-geared trust or company | Yes, at market value |
| Residential property | No |
| Shares in a private company, units in an ordinary private trust | No, unless one of the exceptions above applies |
| Crypto assets, artwork, cars, collectables | No |
| Assets acquired because of a relationship breakdown, or on certain fund mergers | Yes, under specific exceptions |
Listed securities are the most commonly used exception, and the price must reflect market value on the day.
What section 66 doesn't stop
- Selling to a related party. The fund can sell an asset to a member at market value, on arm's length terms.
- Buying from an unrelated party, even if the asset is something a member would like the fund to own. But it must then be dealt with at arm's length, and if it's leased to a related party, the in-house asset rules apply.
- Contributions of money. Section 66 doesn't apply to money.
How do these rules fit with the other SMSF investment rules?
The in-house asset and related-party rules sit inside a wider set. When we review a family dealing, we check all of these together.
| Rule | Where it is | What it stops |
|---|---|---|
| Sole purpose test | s 62 SIS Act | Any present-day benefit to members or relatives from fund assets |
| No loans or financial help to members or relatives | s 65 SIS Act | Lending to, or guaranteeing for, a member or relative, in any amount |
| No acquiring assets from related parties | s 66 SIS Act | Buying or taking in assets from related parties, except listed securities, business real property and the other exceptions |
| No borrowing except LRBAs | ss 67, 67A SIS Act | Fund borrowing; and since 10 August 2026, new LRBAs over real property that isn't business real property |
| In-house asset limit | ss 69 to 85 SIS Act | Loans to, investments in and leases with related parties above 5% |
| Arm's length dealing | s 109 SIS Act | Any deal on terms more favourable to the other party than arm's length |
| Non-arm's length income and expenses | s 295-550 ITAA 1997 | Income from non-arm's length dealings is taxed at 45%. See our NALI and NALE guide |
What happens if the fund breaches these rules?
It depends on how serious the breach is and how quickly it's fixed.
- The auditor reports it. Breaches of the in-house asset and section 66 rules are among those an approved SMSF auditor must report to the ATO through an auditor contravention report, where the reporting criteria are met. Our SMSF audit guide explains how that works.
- The ATO can respond with an education direction, a rectification direction, administrative penalties, enforceable undertakings, or in serious cases by disqualifying trustees or making the fund non-complying (which taxes the fund's assets at the highest rate).
- Administrative penalties apply to each trustee. With four individual trustees, the same breach can mean four penalties. With a corporate trustee, one penalty is shared by the directors. Our corporate trustee guide explains the difference.
The ATO's approach is generally more measured where trustees find a breach early, tell us, and fix it. That is a large part of why we check related-party dealings during the year, not just at audit time.
Mistakes we see with related parties and in-house assets
- Lending fund money to a member "just for a few weeks". That's a section 65 breach, regardless of amount.
- Investing in a family unit trust that borrows, so the units are in-house assets well above 5%.
- Not counting in-laws, nephews and business partners as related parties.
- Leasing a residential property to a relative, even at full market rent.
- Taking listed shares into the fund from a member without evidence of the market value on the transfer date.
- Forgetting that market falls count. An investment that was 4.8% when made can be 5.5% at 30 June.
- No written plan when the fund goes over 5%.
- Informal arrangements with the family company, such as unpaid rent or the company paying fund expenses, that create loans in one direction or the other.
- Assuming a 13.22C trust is still compliant without checking its bank statements and title each year.
How BPAG helps
We prepare the fund's financial statements and annual return, coordinate the independent audit with an approved SMSF auditor, and test related-party dealings as part of our year-round compliance monitoring.
- A related party map. We list each member's relatives, business partners and controlled entities, so the fund knows who it can't deal with freely.
- The 5% test, calculated at each acquisition and again at 30 June, with a written plan prepared promptly if the fund is over.
- Technical questions, such as whether a unit trust is related, or whether an asset falls within an exception, are worked through by our super and SMSF agent and checked by your accountant. Our trust deed agent can summarise a unit trust or family trust deed to show who controls it; your accountant confirms what matters.
The agents draft. Qualified accountants review and sign off, and nothing goes to you, the auditor or the ATO without a person approving it. Loan agreements, leases and deeds are prepared by a solicitor, and investment recommendations come from a licensed financial adviser. We work with both.
What to send us
- The fund's latest financial statements and investment strategy
- A list of any loans, leases or investments involving members, relatives, or their companies and trusts
- Deeds and unit registers for any unit trust the fund has invested in
- Any loan agreements and leases, with repayment and rent records
- Valuations used for any asset transferred into the fund
More on how these rules apply to property in our SMSF property guide, or see our SMSF accounting and audit service.
Frequently asked questions
Can my SMSF lend money to me or my children?
No. Section 65 of the SIS Act stops an SMSF lending money or giving any other financial assistance to a member or a relative of a member. This is a separate rule from the in-house asset limit, so even a tiny loan to a member breaches it. A loan to a related company or trust is different, and is an in-house asset subject to the 5% limit.
Are shares in the listed company I work for an in-house asset?
Usually not. An investment in a company is an in-house asset only if the company is a related party of the fund. A large listed company is very rarely controlled by a member and their associates. Your employer can be a related party if it is a standard employer-sponsor of the fund, so check that if the fund holds shares in a private employer.
Does the 5% limit apply to each member or to the whole fund?
To the whole fund. The test compares the market value of all in-house assets with the market value of all the fund's assets, regardless of whose member account they relate to. In a family fund, one member's business investment can use up the whole fund's 5% allowance.
Is artwork or a collectable an in-house asset?
Not usually, but collectables and personal use assets have their own strict rules. They can't be leased to or used by a related party at all, must be insured in the fund's name, and must be stored away from members' homes. If the fund leases one to a related party, it breaches those rules as well as creating an in-house asset.
Can the fund sell an asset to a member?
Section 66 restricts the fund buying from related parties, not selling to them. A sale to a member is allowed if it is at market value and on arm's length terms, and the auditor will want to see an independent valuation. The sale also has tax consequences for the fund and may affect the investment strategy.
What if the fund didn't know the borrower was a related party?
The in-house asset test is about the facts, not what the trustees knew. A related party is related whether or not you realised. This is why a related party check, covering every member's relatives, business partners and controlled entities, is worth doing before the fund deals with anyone it knows.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.