One of the most compelling reasons Australians set up an SMSF is the investment freedom it offers. Unlike industry and retail funds, a self managed super fund lets you invest directly in a wide range of assets — from shares and gold to property and private companies.
But that freedom operates inside a strict legal framework, and understanding the rules is not optional. This post covers what your SMSF can invest in, what the key restrictions are, and where the compliance lines sit — without telling you what to invest in. That’s your call, or your financial adviser’s.
What Is an SMSF Investment Strategy and Why Does It Matter?
Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), every SMSF must have a written investment strategy. This isn’t a formality — it’s a legal requirement, and the ATO checks for it.
Your investment strategy must address:
- The fund’s investment objectives
- The risk profile appropriate for your members
- How the fund will achieve diversification
- The liquidity needs of the fund (particularly as members approach retirement)
- Whether to hold life insurance for each member
The strategy must be reviewed regularly — at minimum annually, and whenever there’s a significant change to the fund’s circumstances. As trustees, you are personally responsible for maintaining it. If your fund is audited and a current, documented investment strategy isn’t in place, you’re exposed.
An accountant can help you ensure the document meets ATO requirements. What goes in the strategy — the actual investment decisions — is a separate matter that sits with you as trustee, or with a licensed financial adviser if you choose to engage one.
What Can You Invest In With Your SMSF?
SMSFs have access to a broader investment universe than most standard super funds. Permissible asset classes include:
- Australian and international shares — direct holdings or via managed funds and ETFs
- Cash and term deposits — straightforward, commonly used for liquidity
- Managed funds and ETFs — including listed investment companies (LICs)
- Gold and other commodities — permissible with specific storage and documentation requirements
- Cryptocurrency — allowed, but heavily scrutinised by the ATO; must be held in the fund’s name with clear separation from personal holdings
- Bonds and fixed income
- Property — both residential and commercial, with significant rules attached (covered in the section below and in full detail in our dedicated property post)
Every investment must be made and maintained in accordance with your written investment strategy and must satisfy the sole purpose test — meaning the fund’s investments must exist solely to provide retirement benefits to members.
Can an SMSF Invest in a Business or Private Company?
Yes — but the conditions matter enormously, and this is an area where trustees frequently get into trouble.
An SMSF can invest in a private company by purchasing shares in it. However, if that company is a related party — meaning it’s connected to you, another member, or a relative — the investment is classified as an in-house asset. Under the SIS Act, in-house assets cannot exceed 5% of the fund’s total assets at market value.
The distinction between investing in a business and the fund owning a business outright is also important. An SMSF can hold shares in a company that runs a business. The fund itself cannot operate a business directly — that would breach the sole purpose test.
The arms-length rule applies to all transactions. If your SMSF invests in a related entity, every transaction must be conducted at market value, on terms that would apply between unrelated parties. Sweetheart deals between the fund and related parties are a common trigger for ATO scrutiny.
Can an SMSF Invest in a Unit Trust?
Unit trusts are a permissible SMSF investment, but the type of trust matters significantly.
Geared (leveraged) unit trusts — where the trust borrows to invest — can be accessed by SMSFs under specific conditions set out in the regulations. The rules here are detailed and require careful structuring to remain compliant.
Related unit trusts — where the trust is connected to a member or associate — are treated as in-house assets and fall under the 5% cap. They are heavily restricted and attract close ATO attention.
If you’re considering investing your SMSF in any unit trust structure, get specialist advice before proceeding. This is not an area where trial and error is a sensible approach.
What About Less Obvious Assets — Cars, Gold, Collectibles?
Can an SMSF buy a car? Generally, no — not in any practical sense. A motor vehicle is considered a personal use asset. For an SMSF to hold it, the asset cannot be used by a member or related party at any point, must be stored appropriately, insured in the fund’s name, and the purchase must serve the fund’s retirement purpose. In practice, it’s rarely appropriate and almost always flagged by auditors.
Gold and precious metals Yes — an SMSF can hold physical gold and other precious metals. The key requirements are that the asset must be held in the fund’s name, stored with an approved custodian or vault (not at your home), and properly insured. Documentation of purchase and valuation must be maintained for audit purposes.
Collectibles and personal use assets Artwork, wine, jewellery, antiques — all permissible, but subject to strict ATO rules. The assets cannot be displayed in a member’s home or used by a related party, must be insured within seven days of acquisition, stored appropriately, and any lease to a related party is prohibited. These rules exist to prevent members from enjoying the assets personally while holding them inside the tax-advantaged super environment.
SMSF Investment Rules and Restrictions in Australia
Four rules govern virtually every investment decision an SMSF makes:
1. The Sole Purpose Test Every investment the fund makes must have one purpose: providing retirement benefits to its members. If an investment also provides a personal benefit to a member or related party — even incidentally — it may breach this test. This is the foundational rule that underpins everything else.
2. The In-House Asset Rule No more than 5% of the fund’s total assets (at market value) can be invested in related party assets. This includes shares in a related company, loans to a related party, or investments in a related trust. Breaching this limit triggers mandatory rectification and potential penalties.
3. The Arms-Length Rule All transactions must be conducted at market value, on commercial terms. Buying an asset from a related party below market value, or selling one above it, breaches this rule — regardless of intent.
4. Diversification The SIS Act doesn’t prescribe a specific asset allocation, but your investment strategy must demonstrate that you’ve considered diversification. A fund with 100% of its assets in a single investment will face questions from an auditor about whether the strategy has been genuinely considered.
Continue reading: SMSF Rules — contributions, borrowing, and what trustees must know
Can an SMSF Borrow to Invest?
Yes — through a structure called a Limited Recourse Borrowing Arrangement (LRBA). This is the mechanism most commonly used when an SMSF purchases property with borrowed funds, though it can also be used for other assets including shares.
How it works in plain English:
- The SMSF borrows funds from a lender (bank or related party, under strict conditions)
- The asset purchased is held in a separate bare trust until the loan is repaid
- If the fund defaults, the lender’s recourse is limited to the asset held in the bare trust — not the fund’s other assets (hence “limited recourse”)
- Once the loan is fully repaid, the asset transfers into the SMSF
LRBAs are legitimate and commonly used, but they’re complex to structure correctly. The ATO has specific requirements around loan terms, interest rates (particularly for related party loans), and documentation. Getting the structure wrong can result in the arrangement being deemed non-compliant.
Continue reading: SMSF borrowing rules — what trustees must know
SMSF and Property — The Short Version
Property is the most common reason people consider setting up an SMSF, and it’s also the area with the most rules attached. Here’s the short version:
- An SMSF can buy residential and commercial property
- It cannot buy residential property from a related party (you can’t sell your investment property to your own SMSF)
- Members cannot live in a residential property owned by the fund while it’s in accumulation phase
- Commercial property can be leased to a related party — including your own business — but only at market rent on commercial terms
- Borrowing to buy property via an LRBA is permitted but must be correctly structured
- Questions around Airbnb, vacant land, overseas property, and property development all have specific answers under the rules
We cover all of these in full detail — including the questions around selling property to or from your SMSF, living in the property at retirement, and developing property inside super — in our dedicated property guide.
Read the full guide: SMSF Property Investment — rules, restrictions, and what’s actually allowed
Frequently Asked Questions
Does my SMSF need a written investment strategy?
Yes — it’s a legal requirement under the SIS Act, not a recommendation. The strategy must be in writing, reviewed regularly, and address risk, diversification, liquidity, and member insurance. Your SMSF auditor will check for it annually.
Can my SMSF invest in my own business?
It can invest in your business by purchasing shares in it, subject to the in-house asset rules (5% cap if it’s a related party). The fund cannot operate a business directly. All transactions must be at market value on commercial terms.
Can I buy gold or cryptocurrency with my SMSF?
Yes to both. Gold must be held in the fund’s name, stored with an approved custodian, and properly insured. Cryptocurrency must be held in the fund’s name with clear separation from personal wallets. Both require solid documentation for your annual audit.
What is the in-house asset rule?
It limits the amount your SMSF can invest in related party assets to 5% of the fund’s total assets at market value. Exceeding this limit requires rectification and can attract ATO penalties. It applies to shares in related companies, loans to related parties, and investments in related trusts.
Can an SMSF borrow money to invest?
Yes — through a Limited Recourse Borrowing Arrangement (LRBA). The structure must be set up correctly from the start, with the asset held in a separate bare trust until the loan is repaid. LRBAs are most commonly used for property purchases but can apply to other assets.
Got Questions About Your SMSF’s Investment Compliance?
Understanding what your fund can and can’t invest in is one thing. Making sure your investment strategy document is correctly structured, your transactions are properly recorded, and your annual obligations are met is another.
At KSH TAX, we handle SMSF setup, accounting, and tax returns — ensuring your fund stays compliant with the ATO while you focus on the investment decisions. If you’re setting up a new SMSF or need a second opinion on your current fund’s compliance position, we’re the right starting point.
To get started, contact us to book your free consultation.
