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Costly SMSF Compliance Pitfalls to Avoid in 2025-26

Self-Managed Superannuation Funds (SMSFs) are one of the fastest-growing areas of Australia’s retirement savings system, now accounting for more than 625,000 funds with over $1 trillion in assets ^[1]. With the 2025–26 financial year introducing new contribution caps, pension rules, and enhanced audit requirements, SMSF compliance has never been more critical.

Both the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) have sharpened their focus on governance, audit standards, and reporting obligations. For trustees, non-compliance is no longer just a bureaucratic headache—it can lead to penalties, disqualification, and even the loss of concessional tax treatment. Here is an outline of key compliance challenges faced by SMSF trustees in 2025–26, recent regulator findings, and practical steps for your self-managed super fund.

ATO & ASIC: Heightened SMSF Scrutiny in 2025–26

In 2024–25, the ATO reviewed more than 200 SMSF auditors, referring 41 to ASIC and prompting 36 voluntary deregistrations ^[2]. The regulator identified persistent failures in independence, audit evidence, and valuation checks. These concerns will continue through 2025–26, with the ATO confirming its priorities include:

• Ensuring assets are valued at market rates with appropriate evidence.
• Reviewing high-volume auditors and “low-fee” audit models that risk cutting corners.
• Monitoring governance standards and timely lodgement of annual returns.

For trustees, this means preparing for a more rigorous compliance environment where “tick-box” processes will not be sufficient.

Common SMSF Compliance Pitfalls in 2025–26

Many SMSF trustees inadvertently trip over the same compliance hurdles each year. In 2025–26, the key areas of concern include:

• Asset Valuation Gaps: Trustees must provide verifiable market valuations as at 30 June each year. Re-using last year’s figures without evidence is a red flag ^[1].
• Trustee Declarations: Every new trustee (or director of a corporate trustee) must sign a Section 104A declaration within 21 days. Failure to properly retain this can trigger compliance action.

• Late or Missing Annual Returns: The ATO has intensified its crackdown on overdue SMSF Annual Returns (SARs), with late lodgement threatening penalties and a loss of “complying” status. 85,000 funds are still yet to lodge their annual return for 2023, and 54,000 SARs were still outstanding for the 2022 financial year. For some of these funds, not having lodged their SAR(s) may indicate an attempt to hide further compliance breaches ^[3].

• LRBA Breaches: Limited Recourse Borrowing Arrangements (LRBAs) remain under heavy scrutiny, particularly related-party loans and breaches of safe harbour terms. Check out this article on our blog for more on LRBAs.
• Weak or Outdated Investment Strategies: Trustees must maintain a current, fund-specific investment strategy that addresses diversification, liquidity, insurance, and retirement objectives.
• Outdated Trust Deeds: Trust deeds that don’t reflect new caps, Division 296 super tax, or pension rules risk invalidating fund actions.

Even seemingly minor oversights can attract serious consequences, from administrative penalties to funds being taxed at 45%.

Strengthening SMSF Compliance in 2025–26

Trustees can significantly reduce their risk profile by adopting proactive compliance measures:

• Audit Readiness: Engage independent, high-quality auditors and engage them early to avoid last-minute issues.
• Digitised Record-Keeping: Store trustee minutes, valuations, and declarations in secure, cloud-based systems for easy auditor access.
• Compliance Calendar: Implement alerts for SAR lodgement, trustee declarations, and annual investment strategy reviews.
• LRBA Discipline: Stick to ATO safe harbour terms and avoid related-party transactions outside the benchmarks.
• Annual Deed Reviews: Update trust deeds regularly to reflect legislative changes, including contribution caps and transfer balance limits effective from July 2025.
• Engage a SMSF professional: As is the case for much of the SMSF world, engaging a professional to manage setup, implementation and compliance requirements of your fund can help ensure you stay off the ATO’s radar while also working towards your retirement goals according to your circumstances and risk profile.

By embedding compliance into day-to-day fund management rather than scrambling at year-end, trustees build resilience and peace of mind.

Looking Ahead + What You Can Do Now

SMSF compliance in 2025–26 is about more than avoiding penalties—it’s about protecting your retirement wealth. With regulators demanding higher standards of governance, record-keeping, and audit integrity, trustees must maintain an “audit-ready all year” approach.

Working with experienced advisers can help trustees interpret complex legislation, stay ahead of changes, and create systems that make compliance seamless. At McKinley Plowman, we specialise in guiding SMSF trustees through these challenges, ensuring your fund remains compliant and strategically positioned for the future. Additionally, we work with auditors who satisfy our high standard of excellence. This means if there is an audit requirement on the horizon, you can be sure that everything is in hand. For tailored SMSF advice, contact our Superannuation team on (08) 9301 2200 or visit mckinleyplowman.com.au/contact-us.

References & Further Reading

1. ATO (2025). SMSF auditor compliance focus for 2025. https://www.ato.gov.au/api/public/content/0-6edb85ec-c2f6-4606-b283-50056b0aed89

2. ATO (2025). Auditor Compliance Program results for 2024–25. https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/auditor-compliance-program-results-for-2024-25

3. Vic Leaders (2025). The ATO’s Compliance Crackdown in 2025: Overdue SMSF Annual Return. https://www.vicleaders.com.au/media-and-pr/the-atos-compliance-crackdown-in-2025-overdue-smsf-annual-return/

written by:

Jojo Rollerson

With her career in accounting spanning nearly two decades, Jojo brings to the MP+ Self-Managed Superannuation team extensive industry experience and a passion for industry-leading SMSF Services. Jojo and her team of accounting professionals manage clients’ self-managed superannuation fund affairs so they have the time to enjoy the things they would rather be doing! She enjoys giving clients peace of mind that their super is in the right hands, and has an excellent track record in turning complex superannuation situations into fantastic outcomes for her clients.

Outside of the office, Jojo loves travel, food, cooking, reading, movies, and a nice walk.