Summary: The Australian Taxation Office (ATO) has outlined key SMSF transactions and schemes that are currently under scrutiny. This guide breaks down exactly what the ATO is watching — and how a professional SMSF audit can protect your fund and your retirement savings.
A professional SMSF audit can help trustees identify compliance issues early and maintain better records for ATO review. Managing a Self-Managed Super Fund (SMSF) offers flexibility in growing your retirement wealth, but with that flexibility comes serious compliance responsibility. The ATO actively monitors SMSF transactions and schemes that aim to inappropriately take advantage of the concessional tax rates that apply to complying super funds.
At Mint Super Audits, we’ve spent over 10 years helping Australian SMSF trustees stay compliant and audit-ready. Here’s what the ATO is focused on, based on its official guidance.
Table of Contents
- What Attracts the ATO’s Attention with SMSFs
- What Is Non-Arm’s Length Income (NALI)?
- Property Development & SMSFs: Where the Line Is Drawn
- Super Scheme Smart: Recognising Risky Schemes
- SMSF Audit FAQ
1. What Attracts the ATO’s Attention with SMSFs
According to the ATO, the following transactions and behaviours are currently under active scrutiny:
Non-Arm’s Length Arrangements
The ATO focuses on schemes where parties are not dealing with each other at arm’s length, and where non-arm’s length expenditure has either:
- Been incurred in gaining or producing ordinary or statutory income, or
- Not been incurred, but would have been expected to be incurred if the parties were dealing at arm’s length
Other Key Issues the ATO Is Watching
| ATO Focus Area | Risk Level |
|---|---|
| Income from property developments being inappropriately diverted into SMSFs | 🔴 High |
| Intra-group lending and guarantee arrangements that inappropriately benefit SMSFs | 🔴 High |
| Income derived by a fund through a fixed entitlement to the income of a trust | 🟠 Medium–High |
| Valuation issues for any property purchased directly or indirectly from a private group | 🔴 High |
| Significant management and administration expenses | 🟠 Medium–High |
| Private company dividends or unit trust distributions diverted to SMSFs | 🔴 High |
| Illegal early release of superannuation benefits | 🔴 High |
| Personal services income (PSI) diverted to SMSFs | 🔴 High |
| Incorrect calculation of Exempt Current Pension Income (ECPI) | 🟠 Medium–High |
📌 📌 Source: ATO — SMSF Transactions and Schemes (last updated 30 January 2026)
2. What Is Non-Arm’s Length Income (NALI)?
Non-Arm’s Length Income (NALI) refers to income earned by an SMSF through arrangements where the parties are not dealing independently at market value.
Why It Matters:
- Standard SMSF income tax rate: 15%
- NALI tax rate: 45% (top marginal rate)
Common NALI Scenarios:
- Renting a property to your SMSF below market value
- Providing professional services to your SMSF for free or at a reduced rate
- Selling assets to your SMSF above market value from a related party
Relevant ATO Guidance:
- TR 2006/7 — Income tax: special income derived by a complying superannuation fund (special income was the predecessor to NALI)
- LCR 2021/2 — Non-arm’s length income: expenditure incurred under a non-arm’s length arrangement
- PCG 2020/5 — Applying the non-arm’s length income provisions to ‘non-arm’s length expenditure’ — ATO compliance approach for complying superannuation entities
⚠️ If your SMSF involves any related-party transactions, a professional SMSF audit is essential” For more on how non-arm’s length rules affect your SMSF, read our guide:NALE Changes in 2023“
3. Property Development & SMSFs: Where the Line Is Drawn
Property is one of the most popular SMSF investment classes — but the ATO draws a clear distinction between passive property investment and property development.
The ATO specifically flags income from property developments being inappropriately diverted into SMSFs as a key area of concern, referencing SMSF Regulator’s Bulletin SMSFRB 2020/1.
Similarly, intra-group lending and guarantee arrangements that channel development benefits into an SMSF are under active review.
✅ Generally Compliant SMSF Property Activity:
- Purchasing commercial or residential property for rental income
- Holding property for long-term capital growth
- Acquiring property via a Limited Recourse Borrowing Arrangement (LRBA)
❌ High-Risk SMSF Property Behaviours:
- Diverting property development profits into an SMSF to reduce tax
- Purchasing property from a related private group at a non-market valuation
- Using intra-group loans or guarantees to fund SMSF property acquisitions
💡 Mint Super Audits Tip: If your SMSF is involved in any property transaction with a related party,seek independent SMSF audit advice”before proceeding.
4. Super Scheme Smart: How to Recognise a Risky Scheme
The ATO warns that some schemes specifically target Australians planning for retirement, encouraging them to channel money inappropriately through their SMSF.
The ATO’s Super Scheme Smart initiative educates individuals and their advisers about these arrangements.
Common Features of Risky Schemes:
- 🚩 Artificially contrived with complex structures, usually connecting with an existing or newly created SMSF
- 🚩 Involve a significant amount of paper shuffling
- 🚩 Aim to give a present-day tax benefit, often resulting in minimal or zero tax — or even a tax refund
- 🚩 Sound too good to be true — and generally, they are
How to Protect Yourself:
- Always seek a second opinion from an independent, licensed professional
- Check the ATO’s Super Scheme Smart resources at ato.gov.au
- Ensure every SMSF transaction has a clear, documented commercial rationale
- Schedule a regular independent SMSF audit to catch issues early
5. SMSF Audit FAQ
Q: Does my SMSF need to be audited every year?
A: Yes. An annual SMSF audit is mandatory under Australian law. All SMSFs must be audited by an independent, registered SMSF auditor, and the audit report must be lodged alongside your annual return.
Q: What happens if my SMSF audit uncovers a problem?
A: Your auditor will document the issues in their report, and you’ll be required to rectify them within a set timeframe. At Mint Super Audits, we don’t just identify issues — we provide practical guidance to help you restore compliance efficiently.
Q: How do I know if my SMSF has a NALI risk?
A: If your fund involves any related-party transactions, you may be exposed. Mint Super Audits can provide an independent transaction review to assess your risk position.
Q: What are the consequences of non-compliance?
A: Consequences can include loss of the fund’s complying status, back taxes and penalties, personal liability for trustees, and in serious cases, criminal prosecution.
Q: Can Mint Super Audits service my SMSF if I’m not based in Melbourne?
A: Absolutely. We provide SMSF audit services across all of Australia, with remote audit options available.
