The ATO has highlighted several key SMSF danger areas for 2025, and two of the most significant relate to how trustees manage property within the fund and how they handle member access to SMSF money. Both issues have become increasingly common and are now receiving closer scrutiny. In Part 1 of our SMSF Danger Areas series, we explore the risks linked to related party rental arrangements and the ongoing problem of illegal early access that is disguised as a loan.

1.Related Party Rent and Commercial Property Leases

Many SMSFs own commercial properties that are leased to related businesses. When structured properly, this can be a strong long term investment. However, it must be managed exactly the same as any other commercial tenancy.

In recent years, the ATO has identified more cases where tenants fall behind on rent, pay below market rates or fail to follow the agreed lease terms. Even small delays or inconsistencies can cause compliance issues, especially for funds in pension phase.

What trustees need to monitor

• Rent must be paid on time and in full
• Rent must be at market value
• A written lease agreement must be in place
• Outgoings and maintenance obligations should be documented
• All payments must be recorded and traceable

If these obligations are not met, the SMSF may be providing financial assistance to a related party, which is a breach of the superannuation rules.

Potential consequences

• Loss of tax concessions

• Non arm’s length income issues

• Directions to rectify the breach

• Administrative penalties

• Compliance action during audit

The ATO has signalled that this area will remain a strong focus throughout 2025 due to the number of trustees who are unaware of their obligations.

For more detail from the ATO on related-party leases and SMSF investment rules, see:

– SMSF investment restrictions (ATO)
– SMSFs and property (MoneySmart)

2. Illegal Early Access Disguised as Loans

The ATO continues to uncover situations where members withdraw money from their SMSF and record it as a personal loan. This is illegal. An SMSF cannot lend money to a member or relative, and it cannot provide financial assistance in any form.

Any withdrawal made before meeting a condition of release exposes trustees and members to significant tax and legal risks.

Common signs of illegal early access

• A member withdraws money for personal expenses

• The transaction is labelled as a loan

• There is no repayment schedule

• The fund assets or bank account show unexplained reductions

• Trustees use SMSF funds to cover short term cash flow needs

The ATO is focusing heavily on this behaviour and considers it one of the highest risk SMSF breaches.

Consequences for trustees and members

• High tax penalties

• Fund becoming non compliant

• Loss of concessional tax treatment

• Administrative penalties for each trustee

• Possible disqualification of trustees

Once an SMSF is found to have provided financial assistance, there is very little flexibility for defence. For more information on the consequences of SMSF non compliance, the ATO provides a detailed outline of its actions at ATO smsf non compliance actions.

Property-related breaches and illegal early access are two of the most serious SMSF compliance risks in 2025. Trustees should ensure rental arrangements with related parties are fully commercial and should never use SMSF money for personal or business cash flow. In Part 2 of our series, we will look at the risks linked to early release of super under compassionate grounds and the problems that arise when trustees or members misunderstand the conditions of release. If you need support with SMSF accounting or tax compliance, please contact us.