Should your SMSF purchase a business?

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Using your super to buy or start a business

Using your SMSF to buy or run a business is one of the most misunderstood areas of superannuation law. While many trustees want to use their SMSF to support a business venture, the ATO places strict limits on when this is allowed. In this article, we explain the rules governing SMSF investments in business-related assets, as well as what trustees should consider before making any decisions.

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Can you use your SMSF to buy a business?

SMSFs are not permitted to buy or run a business because doing so creates an apparent conflict with the sole purpose test. Any arrangement involving a member’s business also fails the arm’s length rules, as the SMSF would be providing financial assistance or a commercial advantage.

These restrictions are designed to ensure SMSF investments remain focused on long-term retirement outcomes.

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Can an SMSF invest in a private company?

Although SMSFs can’t buy a business, they can hold private company shares where the investment is genuinely commercial and entirely at arm’s length.

For example, an SMSF may invest in a private company that has no connection with any member, provided the company is not used to run the member’s business. However, the SMSF cannot hold shares in a company controlled by a member or one used to operate their business.

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What are the rules and restrictions?

Australian superannuation law imposes clear restrictions on business-related activities. SMSF trustees must comply with:

1. Sole purpose test requirements — the fund cannot be used to benefit members or their business operations before retirement.
2. Restrictions on related-party transactions — any investment involving members or their associates must meet strict conditions.
3. Arms-length investment rules — all dealings must reflect normal commercial terms and market value.
4. Prohibited acquisitions — an SMSF cannot acquire assets from members or related parties unless a strict exemption applies.
5. In-house asset limitations — related-party investments must not exceed 5% of the fund’s total value.

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What are the risks and potential penalties?

Using an SMSF in ways that support a business can expose trustees to serious compliance issues. The ATO closely monitors SMSF behaviour, and any breach can trigger significant consequences.

Common risks and penalties include:

• Non-compliance status, which can result in higher tax rates on the fund’s assets
• Administrative penalties are issued directly to trustees, not paid by the fund
• Rectification directions, requiring you to unwind or correct the breach at your own cost
• Loss of concessional tax treatment, increasing the fund’s overall tax liability
• Disqualification of trustees in severe cases of repeated or intentional breaches

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For business owners

If you want your SMSF involved in your business strategy, ensure the structure stays at arm’s length. Leasing commercial property from your SMSF is usually acceptable. Running your business inside the SMSF is not.

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What are safer ways to use your SMSF for business growth?

Although an SMSF cannot run your business, it can support your long-term business goals through compliant investment strategies.

Common examples include:

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1. Buying commercial premises through the SMSF

For instance, the fund may purchase an office or warehouse and lease it to your business at market value. This keeps ownership separate while freeing up business cash flow.

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2. Using an LRBA to acquire a business property

If the SMSF lacks sufficient liquidity, it may borrow under an LRBA to acquire a single commercial property used by the business.

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3. Investing in unrelated businesses

The SMSF can buy shares in a company as long as no member or relative is connected to it.

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4. Strengthening retirement savings while running a business

SMSF investments in diversified assets help business owners mitigate personal financial risk during periods of business growth.

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Get expert SMSF advice from Liston Newton

If you’re considering ways to align your SMSF strategy with your business goals, our SMSF specialists can help you structure the fund correctly while staying fully compliant with ATO rules. Liston Newton provides tailored advice to ensure your SMSF supports long-term retirement savings without risking penalties or breaching superannuation law.

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Schedule a free strategy session to get personalised guidance on avoiding SMSF compliance breaches and building a secure, growth-focused plan for your future.

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