Overview: Christina and Alex are seasoned investors and professionals with a passion for small businesses and property investments. In their early fifties, they are keen on maximizing their investments to secure a comfortable retirement. They have effectively allocated their Self-Managed Super Fund (SMSF investment) in property and various listed shares. Recently, Alex’s friend Mike proposed a business venture involving the acquisition of a medium-sized grocery store, akin to a Friendly Grocer or IGA, necessitating a significant investment of a few million dollars. Mike has sought Christina’s assistance in fundraising to facilitate this purchase. 

Christina, with her expertise in fund management, has access to a network of investors interested in small business opportunities. Meanwhile, Alex, leveraging his experience as an area manager for Woolworths supermarket, has offered to consult with Mike on establishing the operation. Mike envisions developing a network of supermarket-style grocery stores.

Considering this opportunity, Alex discussed with Christina the possibility of investing a portion of their SMSF in the venture. Christina suggested reaching out to Investax to determine the feasibility of the investment, taking into account the nuances of ATO compliance, the SIS Act, and audit requirements, especially since the investment would be in a small business entity rather than in property. 

Challenges in SMSF investment

Navigating the In-House Asset Rule: A significant challenge for Christina and Alex involves ensuring compliance with the in-house asset rule of the SMSF regulations. This rule generally restricts the fund from investing more than 5% of its total assets in in-house assets, which can include loans to, or investments in, related parties of the fund, or related trusts.

If Alex, as a member of the SMSF, were to work as an employee or in a management capacity within the grocery store business, it could potentially blur the lines between the fund’s investments and its business operations, raising concerns about whether the business investment could be considered an in-house asset. They must carefully structure Alex’s involvement to ensure that their SMSF does not breach this rule, which might involve seeking specialised legal advice to navigate these complex regulatory waters while leveraging their investment opportunity. 

Findings and Solutions 

In exploring the feasibility of a Self-Managed Super Fund (SMSF) investing in a private business, several key considerations and solutions have been identified: 

  1. Annual Valuation of SMSF Assets: It is imperative for SMSF assets to undergo at least an annual valuation. This practice can pose challenges, especially for minority shareholders in obtaining audited financial statements or accurate valuations of company assets/shares.  
  1. In-House Asset Regulation Compliance: An investment by the SMSF, its members, or related parties that results in a combined interest of 10% or more in the company does not automatically classify as an in-house asset, provided there is no control over the company by the SMSF (e.g., through being a sole director or having a casting vote). Control is defined under SIS Section 70E, which should be thoroughly understood to avoid inadvertent regulatory breaches. 
  1. Employment and Management Roles: Serving as an employee or manager within the invested company does not, in itself, trigger in-house asset concerns unless such a position affords the SMSF trustee or member control over the company, as outlined in SIS 70E. It is crucial to ensure that any involvement in the company’s operations is structured in a way that does not compromise the SMSF’s compliance with in-house asset rules. 
  1. Non-Arm’s Length Income (NALI) Considerations: Even in transactions with non-related companies, NALI provisions may apply. Should an SMSF member be employed by the business, it is essential that their remuneration reflects market rates, akin to any other employee, to prevent issues related to NALI and maintain the integrity of the SMSF’s investment. 
  1. Setting Valuation Expectations: Given the requirement for annual asset valuation, setting clear expectations with the company regarding this requirement is paramount before committing to the investment. This ensures ongoing compliance and aids in the seamless management of the SMSF’s investment portfolio. 

In conclusion, Christina and Alex’s venture into investing their SMSF in a small business entity underscores the intricate balance between opportunity and compliance within the SMSF framework. Their challenges and the subsequent solutions highlight the necessity of diligent planning, regulatory adherence, and professional guidance. For SMSF trustees exploring similar ventures, the importance of expert advice cannot be overstated.  

If you’re considering investments beyond the typical property or share types and are unsure about compliance guidelines, we encourage you to reach out to us at Investax. Our expertise can offer clarity and confidence in your investment decisions, ensuring they align with both your financial goals and regulatory requirements. 


Inhouse Asset – An in-house asset for a Self-Managed Superfund (SMSF) typically refers to an investment or asset that is related to, or involves, a member of the SMSF or their related parties. According to the Australian Taxation Office (ATO) regulations, an in-house asset can be: 

  • a loan to, or an investment in, a related party of your fund 
  • an investment in a related trust of your fund 
  • an asset of your fund that is leased to a related party. 

The ATO instructs that in-house assets must not exceed 5% of the total market value of the Self-Managed Super Fund’s (SMSF) assets. 

This rule is designed to ensure that SMSFs are primarily used for the purpose of providing retirement benefits to their members, and to prevent the misuse of superannuation funds for personal or related party financial dealings. Therefore, the investments and transactions made by an SMSF need to comply with this rule, among others, to meet the sole purpose test and ensure the fund is being used appropriately for retirement savings. 

Valuation: Valuation is the process of determining the current worth of an asset in a Self-Managed Super Fund. It involves assessing various aspects of a business or an asset to arrive at a fair estimate of its value to date. The value represents the worth of the asset, which could potentially be sold to a third party for the valued amount. 

Pro Tips

Investment Strategy: As a trustee, it’s imperative to ensure that every investment aligns with your SMSF’s overarching investment strategy. Should a potential investment diverge from this established path, it’s your responsibility to thoughtfully revise the investment strategy to accommodate the new direction. Begin this process by conducting a comprehensive review of your fund’s existing asset distribution and risk exposure. This initial step is crucial to ascertain that the new investment not only meshes well with your wider financial objectives but also maintains a balanced risk profile across your portfolio, preventing any undue concentration in a single area. 

Understand Regulatory Boundaries: Familiarise yourself with various Self-Managed Super Fund (SMSF) regulations, especially the in-house asset rule, to ensure your investment doesn’t inadvertently breach compliance. This understanding is crucial to navigate the complex regulatory landscape of SMSF investments in small businesses. 

Set Clear Valuation Expectations with Partners: When venturing into investments such as retail outlets, property, or land development alongside multiple partners or stakeholders, it’s critical to formalise agreements that highlight the importance of annual valuations prior to committing your Superfund’s money. It’s equally important to have a mutual understanding of the valuation process to guarantee adherence to SMSF regulations consistently. This clarity not only ensures regulatory compliance but also fosters transparency and trust among all parties involved in the investment. 

Seeking Expert Counsel: Prior to embarking on major investment ventures from your Self-Managed Superfund (SMSF), it’s wise to engage with your accountants and auditors who oversee the compliance of your SMSF. Their specialised knowledge can guide you in crafting an investment strategy that not only optimizes benefits but also consistently adheres to regulatory standards. t’s common for many to rely on online superfund agencies, where direct communication for compliance advice on complex investment strategies might not be readily available. However, the SMSF tax experts at Investax are always ready to assist with compliance checks, especially if you’re considering an unconventional investment.