Many SMSF trustees explore non-geared unit trusts as a way to hold collective investments—especially residential or commercial property—because these structures can legally sidestep the strict in-house asset (IHA) rules that normally apply to related-party dealings inside super funds.

When set up and maintained correctly, such a trust can remain completely outside the IHA regime from the moment the SMSF acquires its units. This delivers genuine advantages: multiple related parties can pool funds for a single asset, the SMSF can later buy extra units from a connected party without breaching acquisition rules, and there may even be stamp-duty efficiencies depending on the property’s value and the relevant state thresholds.

Yet the exemption is extremely delicate. It is granted only if every initial condition is satisfied and none of the prohibited events ever occur afterwards. Once any trigger is activated, the favourable treatment is lost permanently and irrevocably for that particular super fund’s entire holding in the trust. The units immediately become IHAs, count towards the fund’s 5% limit, and can create compliance headaches, penalties, or forced sales.

Here are the most common pitfalls that destroy the exemption:

• The trust buys any shares, units or other interests in another entity (even blue-chip listed shares or managed funds).
• The trustee advances a loan to anyone except an authorised deposit-taking institution (ADI) such as an approved bank.
• The trust takes on any form of borrowing or debt.
• Any asset of the trust is used as security for a loan or given a charge or mortgage.
• The trustee commences or carries on any business activity (property development is not excluded and requires extreme caution).
• The trust leases any of its property to a related party unless that property clearly qualifies as “business real property” and continues to meet that definition.
• Any transaction is entered into on non-arm’s-length terms—even if the deal appears generous to the trust (this test is stricter than the general superannuation arm’s-length rule).
• The trust acquires any asset (other than cash) that was ever previously owned by a related party, outside of very narrow timing and market-value exceptions.

Because the loss of status is permanent for the affected SMSF, trustees must verify all eligibility requirements are met on the day of investment and then actively prevent any of the above events for the life of the holding.

This area sits at the intersection of complex superannuation, trust and tax law. The rules are unforgiving and the consequences of getting it wrong can be costly. Professional, tailored advice from an SMSF specialist is essential before establishing or transacting in one of these trusts.