Common SMSF Compliance Issues (And How They Are Fixed)

Running an SMSF comes with responsibility.

Most people understand that at a high level.

But in practice, this is where things can slip.

SMSFs operate within a regulated framework, and the Australian Taxation Office (ATO) expects trustees to understand and meet their obligations on an ongoing basis.

That said, compliance issues do come up.

Usually not because someone is trying to do the wrong thing, but because the structure wasn’t set up properly, or the rules weren’t fully understood at the beginning.

This guide walks you through some of the more common issues we see, and how they are typically addressed.

Why compliance matters

Before going into the specifics, it helps to understand how these issues are handled.

If something is picked up:

• it may be reported by the auditor to the ATO

• you may need to take corrective action

• penalties can apply depending on the situation

The good news is that many issues can be resolved, especially when they are identified early.

1. Using the SMSF for something other than its purpose

This is one of the more serious areas.

An SMSF needs to exist for one reason.

To provide retirement benefits.

Where issues come up:

• using SMSF property personally

• entering into arrangements that benefit members directly

What usually needs to happen:

• stop the activity immediately

• remove any personal use or benefit

• document what has been corrected

• review how the fund is being managed going forward

In more serious cases, this may need to be reported.

2. Assets not held correctly

This is a very common one.

Assets need to be held in the correct name and aligned with the SMSF structure.

Where things go wrong:

• property registered under the wrong entity

• bank accounts not clearly separated

To fix this:

• update ownership to match the correct structure

• align all supporting documents

• make sure there is a clear separation between personal and SMSF assets

3. Related party transactions not handled properly

Transactions involving related parties are closely regulated.

Common issues include:

• renting residential property to a related party

• transactions not done at market value

What usually needs to be done:

• adjust or end the arrangement

• ensure future transactions are on commercial terms

• support it with evidence, such as market valuations

4. Borrowing structures not set up correctly

If your SMSF has borrowed to purchase property, the structure needs to be precise.

We often see:

• incorrect holding trust setup

• loan terms that don’t reflect market conditions

• inconsistencies across documents

Fixing this usually involves:

• reviewing the entire structure

• aligning documentation

• adjusting loan terms where possible

• getting professional input where things are more complex

5. Missing or incomplete documentation

This comes up more often than expected.

For example:

• no record of trustee decisions

• missing lease agreements

• incomplete financial records

To address this:

• reconstruct documents where possible

• put proper processes in place going forward

• make sure all future decisions are documented

6. Investment strategy doesn’t reflect reality

Your SMSF needs a documented investment strategy.

But more importantly, it needs to reflect what you’re actually doing.

Where issues come up:

• no strategy in place

• strategy not updated

• not considering things like cash flow

To fix this:

• update the strategy

• make sure it considers risk, diversification, and liquidity

• align it with your current investments

7. Mixing personal and SMSF money

This is a basic rule, but still a common issue.

SMSF money needs to be kept separate at all times.

Where it goes wrong:

• paying personal expenses from the SMSF

• using personal accounts for SMSF transactions

To correct this:

• separate accounts immediately

• fix any incorrect transactions

• ensure everything flows through the SMSF going forward

8. Contributions or payments handled incorrectly

This usually comes from misunderstanding the rules.

For example:

• exceeding contribution limits

• making payments before meeting conditions of release

To address this:

• review the transaction

• correct reporting where required

• follow the proper process going forward

9. Late lodgements and reporting

This is more common than people expect.

Delays in:

• annual returns

• audits

• reporting

To fix this:

• bring everything up to date as soon as possible

• get support if needed

• put systems in place to track deadlines

What happens if issues are not addressed

If problems are left unresolved:

• they may be reported to the ATO

• penalties may apply

• trustees can be disqualified

• the fund may be treated as non-compliant

This is why timing matters.

Why fixing issues early makes a difference

Most SMSF compliance issues are manageable.

But timing is key.

When issues are addressed early:

• the impact is usually smaller

• solutions are more straightforward

• risks are reduced

How we can help

We focus on SMSF setup and compliance.

This includes:

• preparing SMSF borrowing documentation

• setting up LRBA and holding trust structures

• making sure everything aligns before the transaction

• supporting ongoing compliance and reporting

If you’d like to understand what this would look like in your situation, you can speak with our team.

Ruby He

Ruby He is the founder of Real Accounting, a specialist firm focused on SMSF setup and SMSF Setup and Compliance.

With years of experience working with business owners and investors, she helps clients navigate SMSF structures with clarity, ensuring compliance while unlocking opportunities to invest in property through super.

Ruby is known for her practical, no-nonsense approach, simplifying complex regulations into clear, actionable steps. Clients value her guidance in structuring SMSFs correctly and her track record of supporting successful property investments within super.

Thinking of using your super to invest in property? Have a chat with Real Accounting.

Disclaimer

Real Accounting does not hold an Australian Financial Services Licence (AFSL) and does not provide financial product advice.

This article contains general information only and does not take into account your objectives, financial situation, or needs.

Before establishing an SMSF or implementing any borrowing arrangement, you may wish to seek advice from a licensed financial adviser to assess whether it is appropriate for your circumstances.