The 5% in-house asset rule for Self-Managed Super Funds (SMSFs) in Australia dictates that the total market value of a fund's investments in, loans to, or leases to related parties cannot exceed 5% of the total value of the fund's assets. This limit is tested annually on June 30 and when new in-house assets are acquired.
You are restricted from having in-house assets that comprise more than 5% of the market value of the SMSF's total assets. An in-house asset is any of the following: a loan to a related party of your fund. an investment in a related party of your fund.
5 Main Asset Classes
The 'in-house asset' rules
The legislation limits the total amount of in-house assets to 5% of the market value of the SMSF. Such investments are considered to potentially compromise the retirement purpose of the SMSF and so are restricted in terms of the percentage of total assets of the SMSF.
SIS imposes various penalties in cases where the in-house assets rules are contravened and such penalties could include administrative (ie monetary) penalties issued to the trustee(s) of the fund, disqualification of trustees, and loss of complying status for the fund.
The Role of a Self-Managed Superannuation Fund (SMSF)
For those looking to use superannuation to fund a business startup, this means the business must be at arm's length and any investment made by the SMSF must benefit the members in retirement-not now.
Notice of non-compliance
Making a fund non-complying can have a significant financial impact on the SMSF because: it does not qualify for concessional tax rates so its assessable income is taxed at the highest marginal tax rate, which is currently 45%
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
Cash and cash equivalents are the lowest risk, most liquid asset class, meaning these assets can be easily accessed and are designed not to incur any significant losses. Examples of cash and cash equivalents include savings accounts, money market funds, and CDs (certificates of deposit).
The 7 common current assets are Cash & Equivalents, Marketable Securities, Accounts Receivable, Inventory, Operating Supplies, Prepaid Expenses, and Other Liquid Assets, representing items easily converted to cash (within a year) for short-term operations, crucial for liquidity.
The crackdown has resulted in the ATO undertaking extensive audits of family trusts and historical distributions, and the issue of hefty Family Trust Distributions Tax (FTD Tax) assessments for noncompliance – being a 47% tax (plus Medicare levy) along with General Interest Charges (GIC) on any historical liabilities.
Common mistakes include: Misusing your SMSF for personal matters. One of the most serious breaches is using SMSF money for personal or business purposes. SMSFs operate as a trusts, and trustees have a legal obligation to keep fund assets separate from personal assets.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
When you sell your primary residence, $250,000 of capital gains (or $500,000 for a couple) are exempted from capital gains taxation. This is generally true only if you have owned and used your home as your main residence for at least two out of the five years prior to the sale.
Using the 4% Rule with a $750,000 portfolio:
Monthly withdrawal: $30,000 ÷ 12 = $2,500. Estimated longevity of funds: Around 25 years, assuming average market returns and inflation adjustments.
The biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
To qualify for 0% capital gains tax, you must have long-term capital gains (assets held over a year) and your taxable income (after deductions) must fall below specific IRS thresholds, which change annually but are roughly <$48,350 for single filers and <$96,700 for married filing jointly for the 2025 tax year, allowing for higher total income when combined with deductions like the standard deduction. The key is keeping your adjusted gross income (AGI) low enough so that after subtracting deductions, your taxable income remains within these limits.
If you're aged 60 or over and withdraw a lump sum: You don't pay any tax when you withdraw from a taxed super fund.