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Fundamental Rules

The Sole Purpose Test
This test requires that a self managed super fund functions for the sole purpose of providing benefits to its members upon their retirement. Any investment decision must be made for future rather than present benefits.
A breach of the sole purpose test may occur where:

  • an investment purchase results in a direct or indirect benefit to a member before they retire,
  • a fund is running a business as part of its investment strategy, and
  • financial assistance or benefits are provided to a non fund member.

The Investment Strategy
Trustees of an SMSF are required to prepare and implement an investment strategy for their fund. JustSMSF will provide you with a very general investment strategy which you can follow or change to suit the purpose and circumstances of your fund.
The investment strategy should take into account:

  • the balance between maximizing the rate of return while considering the risk associated with the investment,
  • the appropriate level of asset diversification,
  • your retirement goals, and
  • the fund’s ability to cover costs incurred by the fund and to pay benefits to members upon retirement. 

As a trustee, you must make sure that all investment decisions are made in accordance with the documented investment strategy.

Borrowing Money
A self managed super fund may only borrow money under limited circumstances as follows:

  • may borrow for a maximum of 90 days in order to meet benefit payments due to members or to pay a surcharge liability,
  • may make a short-term borrowing for a maximum of 7 days to cover
    the settlement of security transactions

In both cases above the borrowing must not exceed 10% of the fund’s total assets and the trustees are not permitted to use assets of the fund as security.
In addition, relatively new rules permit a SMSF to borrow money under limited recourse borrowing arrangements.

In-house Assets
An in-house asset is a loan to, investment in, or lease of a fund asset to a member or related party of the fund. In general, self managed super funds are restricted from acquiring in-house assets. However the following exceptions apply when the investment is made on a commercial basis and:

  • the loan to, investment in, or lease of the fund asset would not result in the level of in-house assets exceeding 5% of the fund’s total asset value
  • the asset is business real property.

True Market Value
Self managed super fund investments must be made and sustained on a strict commercial
basis. The purchase and sale price of fund assets should accurately reflect true market value. Likewise, income on assets held by the fund should reflect a true market rate of return.