SMSFs, Business real property and the small business CGT cap

Clarke McEwan Accountants

Small business clients often want to transfer their business premises into their SMSF as an in-specie contribution to take advantage of the tax effective superannuation environment.

To facilitate the transfer, some clients have sought to utilise the CGT small business concessions and make an in-specie contribution to super using the lifetime CGT cap - simultaneously.

However, the ATO has indicated via a number of private binding rulings that in-specie contributions of active assets, such as business real property, may not qualify for the lifetime CGT cap where the in-specie super contribution is also the CGT event that qualifies for the small business CGT concessions.

As a result, a client's ability to access these valuable concessions may be impacted and careful planning is required to ensure they structure their contributions to meet these complex rules.

Lifetime CGT cap

When a small business owner disposes of an active asset, they may be eligible to disregard some or all of the capital gain resulting from the disposal under the CGT small business concessions. In addition, they may be able to contribute some or all of the sale proceeds to superannuation and elect for the contributions to count towards the lifetime CGT cap.

The lifetime CGT cap for 2018-19 is $1.48 million (indexed annually). Contributions that count against the lifetime CGT cap are neither concessional nor non-concessional contributions.

Broadly, to access the lifetime CGT cap it is necessary for an individual, company or trust to qualify for the 15-year exemption or the $500,000 retirement exemption.

The following table outlines the types of contributions that can be contributed under the lifetime CGT cap:

Contribution type	Amount that counts against lifetime CGT cap
Individual able to disregard capital gain under retirement exemption	Amount of capital gains disregarded under the retirement exemption (up to maximum of $500,000)
Individual able to disregard capital gain under the 15 year exemption	Amount of capital proceeds
Company or trust able to disregard capital gain under retirement exemption	Amount of payment to CGT concession stakeholder of their share of the exempt amount (up to maximum of $500,000)
Company or trust able to disregard capital gain under the 15 year exemption	Amount of payment received by CGT concession stakeholder of their share of capital proceeds

When making small business CGT contributions, depending on the circumstances, the contribution must be made within strict timeframes.

Case study - contribution under the lifetime CGT cap:

Matthew and Lily (both age 70) are farmers who have been running a primary production business for over 15 years. They run their business on a farm they own jointly which qualifies as a business real property.
They decide to retire and sell the farm for its market value of $1.4 million to a third party purchaser.
As Matthew and Lily meet all the basic conditions for small business CGT exemptions as well as the 15 year exemption, they can disregard any capital gains as a result of the sale.
Subject to satisfying the work test, they can then each contribute their share of the capital proceeds ($700,000) from the sale into superannuation under the lifetime CGT cap.

Note – this applies regardless of whether the value of Matthew and Lily's total superannuation balance at the end of the previous financial year exceeds $1.6m, as the contributions are not non-concessional contributions.

In-specie contributions and the lifetime CGT cap

In the Matthew and Lily example, the active asset of the farm was sold and a cash contribution made into superannuation under the lifetime CGT cap. However, the situation is more complex when the transaction involves an in-specie contribution.

For example, if Matthew and Lily transferred their farm into their SMSF as an in-specie contribution, they may not be able to qualify for the lifetime CGT cap as the super contribution is also the event that qualifies for the small business CGT concessions. That is, the ATO has indicated in a number of private rulings ^[1] , that the contributor is not able to utilise the lifetime CGT cap in the event of an in-specie transfer of an active asset into a SMSF, where the small business CGT exemption is applied for the same CGT event.

The Commissioner has stated that the legislation does not contemplate the CGT event, choice (if paid from a company or trust) and contribution of the CGT exempt amount all happening simultaneously. Therefore, the CGT event must occur before a contribution is made and not at the same time.

This view has important implications as in-specie contributions that do not count against the lifetime CGT cap will instead be treated as personal non-concessional contributions and count against the non-concessional cap (assuming the member does not claim a tax deduction for some or all of the contribution), which may result in excess non-concessional contributions.

Due to these issues, advisers should encourage clients to seek a private binding ruling if they are looking to utilise the lifetime CGT cap for an in-specie transfer where the small business CGT exemption is applied for the same CGT event.

Potential solutions

Below we outline three possible alternative strategies that achieve the goal of moving the asset into the SMSF, without the in-specie contribution issue outlined above applying.

SMSF purchasing active asset from client

The SMSF could purchase the active asset from the client (or their trust/company) where they have the required funds available. This achieves the goal of moving the asset into the SMSF, as well as providing cash proceeds to the client (or their company or trust) which can then be contributed to super under the lifetime CGT cap.

Coming back to the example of Matthew and Lily, if their SMSF had cash reserves of $1.4 million, the SMSF could purchase the farm from them. Matthew and Lily could then use the cash proceeds to make contributions under the lifetime CGT cap.

When implementing this strategy, there are a few important things to be mindful of:

A SMSF is only allowed to acquire certain assets from a related party ^[2] , e.g. business real property that's used wholly and exclusively in any business. Generally active assets other than business real property e.g. goodwill of a business, shares in a private company or units in a related trust, cannot be acquired ^[3] .
The purchase must be on arm's length terms and at market value. The SMSF may need to obtain an independent professional valuation to determine the sale price, refer to ATO's Valuation guideline for SMSFs

SMSF uses limited recourse borrowing arrangement (LRBA) to purchase active asset from client

In situations where the SMSF does not have the required funds available to purchase the active asset from the client, an alternative is for the SMSF to borrow the money via an LRBA to complete the purchase.

The cash sale proceeds could then be re-contributed to the fund under the lifetime CGT cap and used to extinguish the outstanding LRBA loan amount. However, it is important to note that this arrangement will incur additional costs as the fund will be required to establish a complying LRBA including the required bare trust arrangements.

Where a fund borrows from a related party, additional care needs to be exercised to ensure the loan complies with the safe harbour guidelines as specified in ATO PCG 2016/5. Otherwise the trustee will need to demonstrate that the loan is on arm's length terms – otherwise any income earned from the asset may be taxed as non-arm's length income.

In-specie contribution of an asset for a different small business CGT event

If a client is disposing of multiple active assets, they could consider triggering a CGT event in relation to one of those assets and then making an in-specie contribution under the CGT cap of a different asset in lieu of the capital proceeds they received.

For example, in ATO ID 2010/217, the ATO confirmed that where a taxpayer sold an asset that qualified for the $500,000 retirement exemption, the taxpayer could contribute a separate asset under the lifetime CGT cap in lieu of the cash proceeds actually received. This is important as it may allow a client to contribute an allowable asset via an in-specie transfer direct to their SMSF under the lifetime CGT cap.

Case study: Winston

Winston (aged 60) ran a successful real estate agent business for more than two decades and has now decided to sell his business and retire. The real estate business operated through a company structure. Winston owned 100% of the shares and the commercial premises. Details are as follows:

Asset	Owner	Ownership period	Cost base	Market value
Shares in SuperAgent Pty Ltd	Winston	20 years	$0	$600,000
Commercial office	Winston	10 years	$200,000	$800,000

Winston wants to sell his shares in the company, but retain ownership of the commercial office within his SMSF which will then be leased to the new business owner.

Sale of shares in the company (CGT event no.1)

Winston sold the shares in SuperAgent Pty Ltd to an unrelated purchaser for $600,000. As he meets the basic conditions for small business CGT exemptions and qualifies for the 15 year exemption, he can fully disregard any capital gains associated with the sale of these shares. He is also eligible to contribute the capital proceeds up to $600,000 into super under the lifetime CGT cap ^[4] .

Small business CGT contribution strategy

While Winston could use the cash proceeds from the sale of shares to make a contribution under the lifetime CGT cap he instead chooses to contribute his commercial office into his SMSF under the lifetime CGT cap instead – as per the scenario in ATO ID 2010/217.

In-specie transfer of commercial office (CGT event no.2)

When Winston in-specie transfers his business real property into his SMSF it will trigger an assessable capital gain of $600,000. However, as the commercial office qualifies for the 50% individual exemption the assessable gain is reduced to $300,000. Winston can then apply the $500,000 retirement concession to fully offset the remaining $300,000 assessable gain - assuming he skips the 50% active asset exemption.

In this case, Winston is then eligible to contribute an additional $300,000 under the lifetime CGT cap – being the amount of the gain offset by applying the retirement concession to the transfer of the commercial office to the SMSF. In this case, Winston could then use $300,000 of his original cash proceeds from the sale of the shares to contribute to super under the lifetime CGT cap.

Mixed contributions

In the above scenario, it is important to note the market value of the BRP ($800,000) contributed in lieu of the share sale proceeds exceeded their value ($600,000) by $200,000. Therefore, only $600,000 of the property can be contributed under lifetime CGT cap. However, as Winston is under 65 years of age (and hasn't previously triggered the bring forward provision) the additional $200,000 could be treated as a non-concessional contribution. He can then make additional non-concessional contributions of up to $100,000 under the bring forward rule.

Summary of contributions:

In-specie transfer of BRP valued at $800,000:
Cash contribution of $300,000:

The end result is that Winston could make total contributions of $900,000 under the lifetime CGT cap (relating to two separate CGT events) and a non-concessional contribution of $200,000. He also has the option of making a further non-concessional of $100,000 to maximise his NCC cap.

The following diagram illustrates the strategy:

Important note

The above example is for illustrative purposes and does not consider the application of the anti- avoidance measures in Part IVA of Tax Act. As this is a complex area of tax law, clients should seek advice from a registered tax agent or obtain a private binding ruling from the ATO before making any decisions relating to the sale of their active business asset, and in-specie transfer of business real property into their SMSF.

[1] Private ruling PBRs: 1013008906784; 1013054081138; 1013021531190; 1012862148885

[2] Section 66 of the SIS Act prohibits a SMSF from acquiring assets from a related party unless an exception applies. A related party is defined as: a member of the fund; a standard employer-sponsor of the fund; and a Part 8 associate of either of these two entities.

[3] Note – SMSFs can acquire units or shares in related companies and trusts under the 5% in-house exemption.

[4] CGT cap election form must be submitted at or before the time of contribution

Disclaimer: This article is not legal or personal financial advice and should not be relied on as such. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain financial advice relevant to your circumstances before making investment decisions. Where a particular financial product is mentioned you should consider the Product Disclosure Statement before making any decisions in relation to the product. Whilst every reasonable care has been taken in distributing this article, Australian Unity Personal Financial Services Ltd does not guarantee the accuracy or completeness of the information contained within it. Any views expressed are those of the author(s) and do not represent the views of Australian Unity Personal Financial Services Ltd. Australian Unity Personal Financial Services Ltd does not guarantee any particular outcome or future performance. Taxation Information in this document should not be relied upon without seeking specialist advice from a tax professional. Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL & Australian Credit Licence No. 234459, 114 Albert Road, South Melbourne, VIC 3205. This document produced in October 2018. © Copyright 2018

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Should you buy or lease your business assets?

By Clarke McEwan • September 18, 2026

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your client deliveries, diagnostic equipment in your medical practice or the high-end digital printer to run your print business. But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments? To buy or to lease? That is the question Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option. First of all, let’s look at why you might decide to buy the item… Buying: the pros and cons: - Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes. - Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital. - Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment. - Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet. Leasing: the pros and cons: - Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For start-ups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business. - Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue. - Con: You don’t own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be. - Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value. - Con: You may lose the use of the asset – if you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.Talk to us about whether buying or leasing is the best way forward. Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make – so it’s a good idea to consult with your accountant early on in the decision-making process. We’ll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for your business.

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Discretionary trusts and the proposed 30% minimum tax

By Clarke McEwan • September 8, 2026

Discretionary trusts, often referred to as family trusts, have been a popular structure for Australian families and businesses for many decades. They are commonly used to operate family businesses, hold investments and assist with succession planning. Their flexibility, together with asset protection and estate planning benefits, has made them an attractive option for many groups. In the 2026–27 Federal Budget, the Government announced a significant proposed change. From 1 July 2028, trustees of discretionary trusts would generally be required to pay a minimum tax of 30% on the trust's taxable income. According to the Government, the proposal is intended to better align the tax paid on trust income with that paid by salary and wage earners, while reducing opportunities to split income between family members. However, the announcement has generated considerable debate. Professional bodies, business groups and tax advisers have expressed concerns that the changes could increase complexity and compliance costs for many genuine family businesses and investment structures. How the proposal is expected to work Under the proposal, the trustee would generally pay the minimum 30% tax on the trust's taxable income. Where trust income is distributed to individual beneficiaries or certain other non-corporate beneficiaries, those beneficiaries would generally receive a non-refundable tax offset recognising the tax already paid by the trustee. This is intended to reduce the risk of the same income being taxed twice, but while maintaining the impact of the 30% minimum tax rate. Importantly, the minimum tax would not apply to every trust. The Government has indicated that a number of trusts would be excluded, including fixed trusts, widely held trusts, complying superannuation funds, charitable trusts, deceased estates, special disability trusts and genuine testamentary trusts. Primary production income and certain income relating to vulnerable minors would also be excluded. The Government has also stated that more than 90% of small businesses are not expected to be affected. While that may be reassuring for some taxpayers, there are still some important issues that could affect family groups using discretionary trusts. What could this mean in practice? One area likely to receive close attention is the use of companies as beneficiaries of family trusts. Many family groups have historically distributed some trust income to a company. This can provide flexibility in managing cash flow, retaining profits within the business and funding future growth. Under the proposed rules, however, the corporate beneficiary would not receive a tax offset for the tax already paid by the trustee. In many cases this will mean that income distributed from a discretionary trust to a company would be subject to double taxation. Another practical impact of the proposed change is that some family groups may find it more difficult to fully utilise existing tax losses. While the impact will depend on each group's circumstances, the proposed minimum tax is likely to reduce some of the flexibility that currently exists when managing taxable income across a family structure within many groups. The Government has also proposed a temporary three-year rollover period, commencing from 1 July 2027, to help restructure into alternative business structures, such as companies or fixed trusts, without triggering immediate income tax or capital gains tax consequences. While this may assist some groups, restructuring is rarely straightforward. Depending on the circumstances, it might be necessary to consider things like stamp duty, loan approvals, financing arrangements, contract changes, licensing requirements and professional advice. Even relatively simple restructures can involve significant time and cost, so careful planning will be important. The rules are not yet final At this stage, the proposal remains subject to consultation. Treasury released a consultation paper in July 2026 seeking feedback on a range of design issues, including how the new rules would operate in different situations. Final legislation has not yet been introduced, meaning aspects of the proposal could still change before the rules become law. For this reason, most groups utilising discretionary trust structures should avoid making major structural decisions based solely on the announcement. Instead, it is sensible to monitor developments while considering whether existing structures are likely to remain appropriate if the proposal proceeds. What should you do now? For many families, discretionary trusts are about much more than tax. They can continue to provide valuable asset protection, succession planning and business flexibility. The proposed changes do not remove those benefits, nor do they prevent discretionary trusts from continuing to be used. However, the proposal does have the potential to change the tax outcomes for some family groups, particularly those with more complex structures or those that regularly distribute income to companies. With the proposed start date still some time away, there is an opportunity to pause and carefully understand how the changes may affect your circumstances and consider whether any planning or restructuring might be appropriate. As the legislation develops, we can help you assess the impact on your business or investment structure and determine whether any action is warranted.

New reasonable travel and overtime meal rates

By Clarke McEwan • September 8, 2026

The ATO has released its updated reasonable travel and overtime meal allowance rates for the 2026–27 income year in Taxation Determination TD 2026/4. The overtime meal allowance has increased to $40.00, while the reasonable amounts for domestic and overseas travel have also been updated based on salary levels and travel destinations. Although these figures are widely publicised each year, they are often misunderstood. A common misconception is that employees can automatically claim a tax deduction up to the ATO's published rates. In reality, the rules are much narrower, and applying them incorrectly could lead to deductions being denied as well as interest and penalties. A travel allowance is the starting point The ATO's reasonable amounts only become relevant if an employee receives a genuine travel or overtime meal allowance from their employer. Generally, an allowance should: Be paid specifically to cover work-related travel or overtime meal expenses; Relate to particular work trips or overtime worked, rather than being a general additional payment; Be shown separately from normal salary or wages; and Be intended to help cover expenses the employee is expected to incur. If an amount has simply been built into an employee's normal salary package or is not identified as a separate allowance, the ATO's reasonable rates generally do not apply. Instead, the normal substantiation rules will usually apply to any deduction claimed. The reasonable rates are not an automatic deduction One of the most common misunderstandings is that receiving a travel allowance allows an employee to automatically claim the ATO's published rate as a tax deduction. This is not how the rules operate. Employees can generally only claim the amount they actually spend on deductible work-related travel or overtime meal expenses. The ATO's reasonable amounts simply mean that, in certain circumstances, employees may not need to keep a receipt for every specific expense. Importantly, the expenses must still have been incurred and they must relate to work-related activities. Good records are still essential Even where a genuine travel allowance has been paid, employees should still keep sufficient records to demonstrate that they incurred the expenses and that their claim is reasonable. Useful records may include: A diary recording work trips and overnight travel; Details of meals and incidental expenses incurred while travelling; Bank or credit card statements showing the expenses were personally paid; A representative sample of receipts; and Where travel involves six or more consecutive nights away from home, a travel diary recording the dates, locations and purpose of the travel. While receipts may not always be required, relying solely on the ATO's published rates without any supporting evidence could expose you to unnecessary scrutiny if your return is reviewed. Practical tips for employees and employers If you receive a travel or overtime meal allowance, it is worth checking that the arrangement satisfies the ATO's requirements before claiming a deduction. Some practical steps include: Review your payslip. Check that the allowance is separately identified rather than being included in ordinary salary or wages. Keep records throughout the year. Maintaining a simple travel diary and retaining some supporting documents is much easier than trying to recreate the information months later. Only claim what you actually spend. The ATO's reasonable amounts are not a target or standard deduction. They simply provide a benchmark for when the normal receipt requirements may be relaxed. Take extra care on longer trips. If you are away from home for six or more consecutive nights, additional travel diary requirements will generally apply. A little preparation can avoid problems later The updated reasonable amounts provide a useful guide for employers and employees during the 2026–27 income year, but they should not be viewed as an automatic entitlement to a tax deduction. Understanding how the rules operate, keeping appropriate records and claiming only genuine work-related expenses can significantly reduce the risk of problems if the ATO reviews your tax return. If you or your employees receive travel or overtime meal allowances, now is a good opportunity to review your current arrangements. We can help you confirm whether the allowances meet the ATO's requirements and what records should be kept to support any future claims.

Penalty units increase from 1 July 2026

By Clarke McEwan • September 8, 2026

From 1 July 2026, the value of a Commonwealth penalty unit increased from $330 to $364. While this may sound like a minor administrative change, it has a direct impact on many ATO penalties, increasing the cost of a range of compliance failures. A penalty unit is simply the method used under Commonwealth law to calculate many fines and administrative penalties. Rather than specifying a fixed dollar amount, the legislation often refers to a certain number of penalty units. As the value of a penalty unit increases, so too do the penalties that rely on it. The new value applies to breaches that occur on or after 1 July 2026. Earlier breaches continue to be assessed using the previous rate. Where the increase is likely to be felt Many of the ATO's administrative penalties are based on penalty units, meaning the increase flows directly through to the amount payable. Failure to lodge on time One of the most common penalties applies where tax returns, activity statements or other required documents are lodged late. The base penalty is generally one penalty unit for every 28 days (or part of 28 days) that a document remains outstanding, up to a maximum of five penalty units. For a small entity, this means the maximum base penalty has increased from $1,650 to $1,820. Higher penalties may apply to medium and large entities, while significant global entities are subject to much larger penalty amounts. False or misleading statements Providing incorrect information to the ATO can also result in penalties. Where there is no tax shortfall, the law provides for base penalties of 20, 40 or 60 penalty units, depending on the circumstances and the taxpayer's level of care. At the new penalty unit value, these base penalties have increased to $7,280, $14,560 and $21,840 respectively, before taking into account any reductions or increases that may apply. Self-managed super funds Trustees of self-managed superannuation funds (SMSFs) should also be aware of the higher penalty amounts. A range of SMSF administrative penalties are calculated using penalty units. For example, some breaches that previously attracted a penalty of $19,800 (60 penalty units) now carry a penalty of $21,840. Importantly, these penalties are generally imposed on each individual trustee rather than the fund itself. This means the total cost can increase significantly where a fund has multiple individual trustees, and the penalties cannot usually be paid from the assets of the superannuation fund. Other obligations, such as certain record-keeping requirements, tax invoice obligations and some superannuation guarantee penalties, may also be affected by the higher penalty unit value. Why this matters For most taxpayers, these penalties are entirely avoidable. Late lodgements, poor record keeping and incorrect information remain some of the most common reasons businesses and individuals incur ATO penalties. While the increase in penalty units may not seem substantial on its own, the cost can add up quickly where there are multiple outstanding obligations or repeated compliance issues. It is also worth remembering that ATO penalties are generally not tax deductible, meaning they must be paid from after-tax income. The good news is that the ATO will often consider remitting penalties (in part or full) where there are genuine mitigating circumstances, reasonable care has been taken, or a voluntary disclosure is made before the issue is identified by the ATO. Addressing problems early typically results in a better outcome than waiting until formal compliance action begins. Practical steps to reduce your risk There are several simple steps that can help minimise the risk of penalties: Lodge on time. Providing information to us well before due dates gives enough time to prepare accurate returns and meet lodgement deadlines. Keep good records. Accurate and up-to-date records make it easier to prepare returns correctly and support your tax positions if questions arise. Review your compliance regularly. If you operate a business or manage an SMSF, periodic reviews can identify issues before they become costly. Seek advice early. If you think you've made a mistake or have fallen behind with your tax obligations, speaking with us as soon as possible will generally provide more options than waiting for the ATO to contact you. A timely reminder The increase in penalty units is a timely reminder that the cost of tax non-compliance continues to rise. While the higher penalties are intended to encourage timely and accurate compliance, they also reinforce the value of good record keeping and proactive tax management. If you have any concerns about outstanding lodgements, record-keeping obligations or any other tax compliance matter, please contact us. We can help you address issues early and minimise the risk of unnecessary penalties.

SMSF and property – preparing for a smooth audit

By Clarke McEwan • September 8, 2026

For many SMSF trustees, property is one of the most significant assets held by their SMSF. Unlike personally owned assets, there is a legal requirement that all SMSF assets are valued each 30 June. This can be a simple process for assets that have a ready market like listed shares, however the process for other assets like property can be more onerous. Trustees are responsible for determining the market value of fund assets. After your annual financial statements are prepared your fund auditor will need to see objective and supportable evidence that backs up how you have arrived at the market value. Trustees have the option to use a qualified independent valuer for this and should consider this where an asset represents a significant part of the fund’s value or might be difficult to value. Where trustees choose not to use an independent valuer, they will need to be able to support asset valuations with evidence from multiple sources. Typically, for property this may include: Recent comparable sales – Generally at least 3 and the properties should be genuinely comparable in terms of size and location. A real estate agent appraisal that also includes comparable sales. Net income yields for commercial property (generally not sufficient evidence on its own). The ATO includes some helpful guidance on this in their Guide to valuing SMSF assets. Where an SMSF holds property that meets the business real property (BRP) definition it is possible that this property can be leased to a business that is operated by a member or a related party of the SMSF. However, the fact that an arrangement like this is permitted does not mean the fund trustees can charge a non-market rate of rent. When a rental arrangement is entered into with a related party of the super fund, that arrangement should be on arm’s length (commercial) terms and this should be supported by a rental appraisal. An easy way to think about this is – do all the lease terms reflect an arrangement that would be agreed to if the tenant was an unrelated third party? To evidence that a related party arrangement is on arm’s length (commercial) terms an auditor should be provided with; A properly documented lease; A rent appraisal when the lease was first entered into; Evidence that the arrangement is operating based on the terms of the lease; and Evidence that where a prior lease term has expired the terms have been reset to market value – backed up by a new rent appraisal. Although your financial year 2026 SMSF audit might not be taking place for some months, the process can be much smoother where SMSF trustees are proactive and start to compile this evidence in advance, rather than waiting for the auditor’s request.