When you become an SMSF trustee, you take on personal legal responsibility for running the fund in compliance with superannuation law. Trustees are not passive participants — they are accountable for every decision the fund makes, and they can face significant penalties if the fund breaches its obligations.
The ATO regulates SMSFs and has broad powers to take action against non-compliant trustees, including disqualification, civil penalties, and in serious cases, criminal prosecution.
Core Trustee Duties
1. Act in the Best Interests of Members
Trustees must act in the best interests of all fund members at all times. This means:
- Investment decisions must be made for the benefit of members’ retirement savings — not for the personal benefit of the trustee
- If there is a conflict between your interests as a trustee and your interests as a member (or related party), the member’s best interests take precedence
- All members must be treated fairly — no member can be favoured over another
2. Comply with the Sole Purpose Test
The fund must be maintained solely to provide retirement benefits (or death benefits) to members. The sole purpose test prohibits the fund from providing any current-day financial benefit to members, trustees, or related parties.
Examples of sole purpose test breaches:
- Trustees or family members living in (or holidaying in) a property owned by the SMSF
- Lending money from the SMSF to a related party (other than via a compliant LRBA structure)
- Using SMSF assets as collateral for personal borrowing
- Investing in assets primarily for lifestyle enjoyment rather than retirement savings
3. Invest According to the Investment Strategy
The fund must have a written investment strategy and all investments must be made in accordance with it. See the SMSF Investment Strategy guide for the specific requirements.
4. Keep Fund Assets Separate
SMSF assets must be kept completely separate from the personal assets of trustees and any related business. This means:
- A dedicated SMSF bank account (separate from personal and business accounts)
- All assets registered in the name of the trustees as trustees of the fund (or in the corporate trustee’s name)
- No commingling of personal and fund funds under any circumstances
Mixing personal and fund assets is one of the most common SMSF compliance failures.
5. Maintain Arm’s Length Dealings
All transactions the SMSF enters into must be at market (arm’s length) prices. This applies to:
- Buying or selling assets — must be at genuine market value
- Rent received from tenants — must be at market rent
- Loans received from lenders under an LRBA — must meet the ATO’s safe harbour interest rate and terms
6. Comply with the In-House Assets Rule
No more than 5% of the fund’s total assets can be “in-house assets” — investments in, or loans to, related parties of the fund. This rule prevents trustees from using fund assets for the benefit of their related entities.
7. Meet Contribution Rules
Trustees must ensure that contributions are accepted in accordance with the fund’s trust deed and the law. This includes:
- Only accepting contributions the fund is permitted to receive (based on members’ ages and contribution caps)
- Meeting the ATO’s contribution acceptance rules for members aged 67–74 (work test may apply)
- Notifying the ATO of contributions via the relevant reporting channels
8. Meet Payment Rules
Super benefits can only be paid to members in the circumstances permitted by law (conditions of release). Trustees must not pay benefits before a member satisfies a condition of release — doing so is a serious breach.
Record-Keeping Requirements
SMSFs must maintain records for specific periods:
| Record Type | Retention Period |
|---|---|
| Financial accounts, statements, tax returns | 5 years |
| Minutes of trustee meetings, decisions | 10 years |
| Trustee declarations and consents | 10 years |
| Investment strategy documentation | 10 years |
| Change of trustee documents | 10 years |
Minutes of decisions must be kept for every significant trustee decision — including investment decisions, accepting contributions, and approving pension payments. Minutes should be dated and signed.
Trustee Declaration
Every new trustee must sign a Trustee Declaration (ATO form NAT 71089) within 21 days of becoming a trustee. This form confirms the trustee understands their obligations. The declaration must be kept by the fund for 10 years and provided to the ATO or auditor on request.
SMSF Disqualification and Penalties
The ATO can take action against non-compliant trustees:
Disqualification: The ATO can disqualify a trustee who has breached the law or is not fit to manage an SMSF. A disqualified person cannot be an SMSF trustee and must leave the fund.
Civil penalties: Breaches of specific provisions (e.g. sole purpose test, in-house assets rule, failure to keep records) attract civil penalties. The amount depends on the breach.
Administrative penalties: The ATO can apply administrative penalties for less serious contraventions. From 2023, many administrative penalties were increased.
Non-compliance: The fund can be declared non-complying, losing its 15% concessional tax rate. A non-complying SMSF pays tax at 45% on its total assets (not just on that year’s income). This is a severe outcome.
Criminal prosecution: The most serious contraventions — such as intentional misuse of SMSF assets — can result in criminal charges.
The Trustee Mindset
Experienced SMSF practitioners often emphasise that the trustee’s job is not just to “sign off” on what the accountant prepares. Trustees are genuinely responsible. Saying “my accountant handles it” is not a defence if the fund is non-compliant.
Trustees should:
- Understand the investment strategy and be able to explain it
- Review financial statements before signing
- Ask questions if an investment or transaction seems unusual
- Seek professional advice before entering complex transactions (LRBA, related-party dealings, crypto)
Frequently Asked Questions
I’m a trustee but my partner makes all the investment decisions — am I still responsible? Yes. All trustees share joint and equal responsibility for compliance. If your fund is found to be non-compliant, each trustee is liable — regardless of who made day-to-day decisions. This is one reason individual trustee structures can be riskier than corporate trustee structures (where the penalty falls on the company, not each individual director).
What if a trustee wants to resign? A trustee can resign by giving notice. If an individual trustee resigns, the remaining trustees must retitle all assets into their names. If using a corporate trustee, the director simply resigns from the company — assets don’t need retitling, which is one of the key advantages of the corporate trustee structure.
Can I be an SMSF trustee if I’m bankrupt? No. An undischarged bankrupt cannot be a trustee or director of a corporate trustee. If you become bankrupt, you must immediately notify the other trustees and remove yourself. You cannot legally continue as a trustee during bankruptcy.
For further guidance, see the ATO’s SMSF trustee responsibilities resource or consult a licensed SMSF adviser.