Self-managed super funds have a lot of appeal and are being heavily marketed by a raft of accountants and financial advisers, all keen to share in the multiple fee clip that is generated by super. In order to widen their marketing appeal, some advisers advertise that they can run your SMSF if it has as little as $100,000 in it.

That figure, according to experts, is about $100,000 to $150,000 too low to render it cost-effective. The yearly cost associated with managing a fund of between $50,000 and $200,000 ranges between 2.63 and 3.55 per cent, according to the Federal Government.

The explosion in SMSFs - there are now more than 370,000 and they are growing at the rate of about 2500 a month, with an average balance of $235,000 - has attracted the attention of regulators and the Tax Office. This is because various rules are being bent more often than regulators would like to see, either deliberately or unconsciously because trustees of these small funds are not clear about their obligations.

One of the bent rules identified by Tax Office audits is breach of the in-house asset rule that requires that no more than 5 per cent of a SMSF's total assets can be acquired from a related company or party.

But what value does the 5 per cent refer to? Cost or market?

It makes a difference.The rule book says that all SMSF assets have to be valued at market. Listed shares are easy to value at balance date but unlisted shares and units and real estate valuations are going to keep accountants and valuers busy. Valuations cost money and will add to the cost of running an SMSF.

To clarify the rules before June 30, the Tax Office has issued a new determination - SMSFD 2008/2 - requiring fund trustees to ensure that all in-house assets are valued at market and not at cost when determining whether they meet the 5 per cent in-house asset cap. Once they exceed that value, some assets have to be disposed of to bring them under the cap.

Wayne Hirt, of KPMG Super Services, says it is not difficult to breach the 5 per cent rule when the value of assets held in a fund move. If share prices held by the fund fall - as many have this year by about 20 per cent - while real property values have held their ground or increased, then chances are that an in-house real property asset that was close to 5 per cent in value last year may be significantly above that figure this year.

If it was bought some time ago and is still carried at cost, it could well breach the 5 per cent rule.

Hirt says it is important for the fund to have up-to-date valuations of assets to satisfy the determination.

If the in-house value exceeds 5 per cent, all is not lost. There is no instant penalty. In such circumstances, the fund needs to have a written plan to show to the Tax Office in the event of a tax audit how it will get below the 5 per cent level within a 12-month period and then implement that plan.

The Tax Office has issued a draft ruling clarifying what constitutes business real property in relation to related party assets. A business asset of an SMSF acquired at market value by a trustee does not contravene the prohibition on other related-party asset acquisitions.

In SMSFR 2008/D3, the Tax Office gives some useful examples of what would normally be regarded as business real property (and what would not) for the purposes of the in-house test.

Included in the business asset category is primary production with the inclusion of a private residence on the property, a motel with a manager's residence, a business-scale bed and breakfast operation, a doctor's surgery with an attached residential premises, lease of commercial retail premises and residential property held as a property investment business.

Examples of exclusions of business assets are water licences, a leasehold interest in afforestation arrangements, letting one's own holiday house for short-term holiday lets and instalment warrants over real property.