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Rather than being a one-off exercise, a health check is best treated as a regular review that helps trustees spot issues early, reduce audit stress, and ensure the funds' records reflect what's actually happening in practice.
Why should you conduct an SMSF health check?
An annual SMSF health check can help trustees confirm their fund is operating as intended, meeting compliance requirements, and staying on track to deliver retirement benefits.
SMSFs are governed by strict rules covering investments, record-keeping, reporting, and trustee responsibilities. An annual review helps identify potential compliance gaps early, before they become audit issues or attract regulator attention.
An annual health check helps:
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Confirm the investment strategy remains current and reflects how the fund actually invests
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Catch issues before they escalate
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Ensure accurate valuations and reporting
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Manage property-specific risks and monitor compliance with complex SMSF rules
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Ensure minimum pension payments are calculated, paid, and recorded correctly
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Reaffirm trustee understanding and accountability
The aim is simple: Confirm the fund is meeting its obligations and that the required documents and processes are in place.
SMSF Health Check List
1. Trustee and governance basics
A good starting point is confirming the fund's foundational details are accurate and up to date.
Trustees should check:
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The trustee structure (individual or corporate) has not changed unintentionally
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All trustees or directors are eligible and properly appointed
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Trustee declarations have been signed by new trustees within the required timeframe
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Decisions are documented through meeting minutes or written resolutions
Record-keeping is also critical. SMSFs must retain financial records, statements, and annual returns for at least five years, while some records - such as trust deeds and changes to trustees - must be kept for longer.
An organised, year-by-year filing system can make audits and ATO requests far easier to manage.
2. Investment strategy review
Every SMSF must have a documented investment strategy, and auditors expect it to reflect how the fund actually invests.
As part of a health check, trustees should confirm the strategy:
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Is reviewed regularly
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Considers risk, return, liquidity, diversification, and insurance
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Matches the fund's real asset mix
Where a single property constitutes a large proportion of the fund's assets, the strategy should clearly acknowledge the concentration risk, cash flow management, and how expenses and member benefits are expected to be met.
Even if the fund decides not to hold insurance for members, that decision should be considered and documented in the strategy.
3. Property-specific compliance checks
Property is a popular SMSF investment, but it is also an area closely scrutinised by auditors and the ATO.
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Sole purpose test
SMSF investments must meet the sole purpose test, meaning they are maintained solely to provide retirement benefits. Trustees should avoid informal arrangements that could create compliance issues.
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Leasing and commercial terms
If SMSF property is leased (including to a related party, where permitted), the lease should be (1) in writing; (2) on arm's-length, commercial terms; (3) supported by market rent evidence; and (4) managed consistently, through rent collection and monitoring any arrears
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In-house asset limits
SMSFs are generally restricted to holding no more than 5% of their total assets as in-house assets (such as certain loans or leases involving related parties).
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Borrowing arrangements (LRBAs)
Trustees should ensure all agreements, ownership structures, and loan terms are correctly established and retained.
4. Asset valuations
SMSFs must report assets at market value each year, and valuations must be supportable. Trustees should ensure there is objective evidence to support the value used.
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Annual market value requirement
All SMSF assets must be valued at market value when preparing the fund's financial statements and annual return.
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Source of market value data
The valuation should be based on objective and supportable evidence (e.g. documented comparable sales, market reports) that reflects what a willing buyer and a willing seller would transact at arm's length.
Accurate valuations are particularly important for:
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Member balances
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Pension calculations
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Audit sign-off
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Annual return reporting
5. Audit and annual reporting readiness
An SMSF must be audited by an approved SMSF auditor each year before lodging its annual return.
As part of a health check, trustees can confirm:
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All financial statements and supporting documents are ready
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Bank statements, contracts, and invoices are complete
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Investment records align with the strategy and trust deed
The SMSF annual return must be lodged each year, even if the fund has no tax payable. Trustees should work backwards from their expected lodgement date to ensure audits and reporting are completed on time.
6. Pension and payment checks (where relevant)
For SMSFs paying pensions, trustees should confirm:
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Minimum pension payments have been calculated correctly
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Payments were made within the required timeframe
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Records clearly show whether payments were pensions or lump sums
Take note: Minimum pension rates depend on a member's age and balance and must generally be met each financial year.
Staying on top of SMSF obligations as a trustee
By taking time each year to review governance, investment strategy, property compliance, valuations, and reporting obligations, trustees can help ensure their fund remains compliant and well-documented.
While professionals play an important role, trustees remain responsible for their SMSF. A regular, structured review can make that responsibility easier to manage, particularly for property-focused funds navigating long-term investments and changing retirement needs.
Trustees who approach their SMSF this way are often better placed to address issues before they escalate.
Disclaimer: This article provides general information only. Trustees should check the latest ATO guidelines and consider seeking professional advice before making decisions that affect their SMSF.
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