Can I Buy A Racehorse With My SMSF?

From Flemington to the Forensic

On 4 November 2025, I had the honour and pleasure of attending the Melbourne Cup.

With an estimated 84,000 people at Flemington, I was struck by the enthusiasm, passion, and colour that defined the day — rain, queues, and chaos included.

Everywhere I looked, there was energy.

Women and men of all ages took immense pride in their outfits, each quietly (or not so quietly) competing in their own way — fashion, flair, and fun all on show.

Then, somewhere between the roar of the crowd and the clinking of champagne glasses, a thought galloped past me:

How do self-managed super funds invest in racehorses?

Can a trustee’s passion for the track ever coexist with their legal duty to act solely for retirement benefit?

That question led me to explore what happens when personal enjoyment meets fiduciary responsibility — and why, in SMSF terms, the difference between a sound investment and a compliance catastrophe might just be one photo finish apart.

When Passion and Purpose Collide

The short answer is technically yes, but in practice, it’s fraught with legal and compliance pitfalls.

While the Superannuation Industry (Supervision) Act 1993 (SIS Act) doesn’t explicitly ban equine investments, it demands that every investment serve only one purpose — to provide retirement benefits. That simple principle, known as the sole-purpose test, is where most such ventures come undone.

The Legal Landscape

An SMSF may acquire almost any asset provided it complies with the SIS Act and Regulations — notably:

s.62 – Sole-purpose test

s.65 – No financial assistance to members

s.66 – Acquisition from related parties prohibited

s.71 – In-house-asset limits

Reg. 4.09 – Investment-strategy requirements

Reg. 8.02B – Market-value reporting

On paper, a share in a broodmare or stallion could qualify if it’s demonstrably commercial: income-producing, arm’s-length, and properly insured. In reality, however, most arrangements fail either the commerciality or arm’s-length test — or both.

Where Motives Matter

Those most likely to explore this path are trustees who already have a personal passion for horses or racing.

Often, they are casual enthusiasts — people who enjoy the track, the social atmosphere, or the thrill of ownership — rather than genuine industry professionals.

This is where risk multiplies. When personal interest meets fund capital, trustees can easily blur the boundary between retirement investment and personal enjoyment.

To satisfy the sole-purpose test, trustees must demonstrate complete dispassionate separation between the two. Every decision must be driven by commercial logic, not lifestyle appeal.

SMSF auditing consistently shows this is rarely achieved. Once emotion enters the decision-making, the SMSF’s compliance footing begins to unravel — exposing trustees to audit qualification, regulatory scrutiny, and reputational damage.

Why Auditors Look Twice

From an audit perspective, racehorse investments raise immediate red flags:

• Personal use or benefit by members or relatives
• Absence of independent valuation or insurance
• Cash-flow strain from training and veterinary costs
• Related-party involvement (for example, member as trainer)
• Inadequate investment-strategy documentation

Even if an SMSF could show commercial intent, the liquidity, valuation, and diversification issues usually render the fund’s position weak under Reg 4.09 and 8.02B.

Put simply: owning a racehorse through an SMSF may pass a dinner-table test, but it rarely passes an audit test.

The Retirement-Benefit Impact

Equine assets are illiquid, volatile, and high-maintenance. They can distort the fund’s balance between risk and return, making it difficult to meet pension obligations or pay benefits.

If the horse fails, becomes injured, or is unsellable, the fund may be forced to realise losses at precisely the wrong time.

For trustees, the cost is not just financial. A breach of the SIS Act can lead to regulatory penalties, loss of complying status, or permanent reputational damage.

What Trustees and Auditors Can Do

For those still determined to proceed, compliance must be meticulous:

• Ensure the trust deed permits such an investment
• Update the investment strategy to address risk, liquidity, and diversification
• Obtain independent valuation and insurance in the fund’s name
• Keep the asset strictly arm’s-length from all members and related parties
• Maintain a full audit trail — resolutions, minutes, valuations, invoices, and insurance documents

From an auditor’s lens, if these fundamentals aren’t airtight, qualification of the audit report is almost inevitable.

In Closing

Yes — an SMSF can invest in a racehorse.

But the real question for any prudent trustee should be:

“Can I prove, beyond doubt, that this serves my fund’s sole retirement purpose?”

In most cases, that answer is no.

When passion and superannuation mix, the line between personal enjoyment and fiduciary duty becomes dangerously thin.

For trustees and auditors alike, this is a classic test of governance discipline — where strong documentation, clear strategy, and forensic oversight are the only safe track to compliance.

Disclaimer:

This article is for general educational purposes only. It does not constitute financial, tax, or legal advice. Readers should obtain their own independent professional advice relevant to their personal circumstances.

David Saul
CEO & Managing Director – Saul SMSF
Independent SMSF Auditors | SMSF Audits Well Solved
www.saulsmsf.com.au