SMSF in focus

retirement saving

Self-Managed Super Fund (SMSF) Basics


A Self-Managed Super Fund (SMSF) is a type of superannuation fund that helps you invest money now, so you’ll have an income in retirement. Unlike regular super funds, which hire fund managers to invest on behalf of its members, an SMSF allows you to manage your own investments and control a private fund that can only be used by yourself and up to three other trustees.

The assets in your SMSF are held by yourself and other members (trustees), which means you each have complete control over your superannuation and the day-to-day management of the fund. Your

SMSF must develop an investment strategy, make investment decisions and comply with all superannuation laws and Australian Taxation Office (ATO) regulations.

An SMSF is defined in the Superannuation Industry (Supervision) Act 1993 as:

  • A fund with more than one member and fewer than five members
  • If the trustees of the fund are individuals, each member of the fund is a trustee and each trustee is a member of the SMSF
  • If the trustees of the fund is a company (body corporate), each member of the fund is a director of the company and each director is a member of the SMSF
  • No trustees receive any remuneration for their trustee services

SMSFs can invest in a range of assets, including commercial and residential property. Although almost anyone can set up and run an SMSF, it’s a major financial decision and you’ll need the right advice to ensure it’s structured and managed correctly, so you can receive contributions and make the most of tax concessions available.


Taking control

An SMSF gives you complete control over the administrative and investment decisions of your superannuation. This means you can act quickly, ensure no mistakes are made in the running of your fund and make decisions that are in the best interests of yourself and other members.

Owning a private super fund also allows you to take advantage of investment opportunities as they arise. In addition to traditional asset classes such as shares and property, you can also make alternative investments such as a members’ business premises, direct property, unlisted shares, artwork or collectibles. You can buy or sell assets quickly, or adjust the asset allocation within your portfolio without the delays often experienced in larger funds.

Members of an SMSF can also pool their super savings to buy assets such as direct property, which they would otherwise not be able to afford. In some circumstances, you can also borrow to invest in assets held in your SMSF, which generally isn’t possible in large super funds.

 Estate planning

SMSFs give you greater control over who will receive your superannuation death benefits and how it will be paid. Unless a valid binding death benefit nomination is in place, large super funds are generally not able to pay death benefits in a particular way. On the other hand, members of an SMSF can amend the clauses in the trust deed so the death benefit can be paid as a lump sum, income stream or a combination of both.

Control over estate planning can provide a number of tax advantages, the most significant being that members over 60 can withdraw their benefits and pay no tax in retirement. This also allows them to avoid death benefits tax, which is paid by certain beneficiaries, including financially dependent adult children.

Tax effectiveness

All superannuation funds have income taxed at a maximum rate of 15 percent. However, SMSFs can leverage a number of additional tax advantages to maximise returns for their members. For example, if assets such as property or shares are sold to fund pension payments to members, there is no Capital

Gains Tax (CGT) owing on the profits made from the sale. For this reason, many SMSFs try to minimise the sale of any assets until their fund begins the pension phase of operations.

Members can also hold their business premises in their SMSF for tax-effectiveness purposes. If the asset is held in the SMSF, your business would pay commercial rent to your SMSF and your fund would benefit from the tax advantages available to landlords, including tax deductions for interest on a mortgage. This rental income will then be available as superannuation down the track.

The flexibility and control you have with a SMSF means you can also seamlessly transition to retirement and structure your finances in the most tax-effective manner.

Cost savings

SMSFs with substantial assets may pay substantially lower fees than large super funds, as the costs of managing an SMSF is more or less fixed. Large super funds generally charge an establishment fee which is a proportion of contributions, as well as ongoing management fees which are a proportion of the fund’s balance. In contrast, the costs associated with an SMSF are limited to professional advice, the investment portfolio and trading costs. SMSFs that invest directly, rather than through managed investment funds, are not liable for fees based on a percentage of their investments.

Although cost savings alone is usually not enough to justify creating an SMSF, the compound effect of cost savings which are reinvested into your SMSF can make a significant difference to your SMSF balance over the medium to long term.


Obligations of trustees

With greater control and flexibility comes greater responsibility. As a trustee of an SMSF, you are bound by law to responsibly manage your super fund for the benefit of its members. These obligations can be considerable and include a number of administrative and compliance tasks that need to be undertaken on a regular basis.

Trustees must also stay across any changes to regulations and legislation, to ensure the SMSF is not in breach of any requirements. The ATO monitors compliance of SMSFs and has the power to implement a number of penalties if your SMSF does not comply with the laws and regulations, including fines, increased taxes or in some cases, civil and criminal sanctions. These penalties can destroy the retirement savings of all SMSF members, so it’s important that each member understands their obligations as a trustee.

Financial knowledge

To manage your own superannuation fund, you need to be confident that you can do a better job than the professional fund managers working for large super funds. Although you are likely to rely on advice from a financial adviser, you are ultimately responsible for the investment decisions of your fund, so will need considerable financial knowledge and investment expertise.

The investment strategy of your SMSF needs to take into consideration the age and contributions of trustees, so the portfolio can be tailored to reach the required benefit levels by the time they reach retirement. Understanding how to structure a diversified investment portfolio, manage risk, monitor the market and measure performance are sophisticated skills that you will need as a trustee of an SMSF.


Running an SMSF can be time-consuming, even if you rely on professional advice and hire a specialised SMSF management service. You need to dedicate time to stay across your SMSF investment strategy and ensure all records are in order. Although you may be enthusiastic now, remember that you’ll need to maintain your commitment for many years and consider how you’ll manage as members age and become frail or ill.


For small super balances, SMSFs may not be the most cost-effective option. A smaller balance means there is less opportunity to diversify your investments, which can increase risk. The ongoing management costs of an SMSF can also be prohibitive, including accounting, audit, management and financial planning fees.

It’s generally agreed that a combined super balance of $200,000 or more is required to set up a cost-effective SMSF. However, it really depends on the types of investments you are planning to make and the expected levels of contributions in the future.


SMSFs are not suitable for everyone, so before setting up a private super fund, consider whether it’s the right choice for you. SMSF is the only superannuation option which allows you to invest in property directly and offers control, flexibility and tax-effectiveness of your retirement income.

If you have sufficient assets and have the time, expertise and inclination to run your own SMSF in line with all legal and regulatory requirements, we can help. Talk to your SF Wealth financial adviser about taking the next step.

This information is general in nature and does not take into consideration your personal circumstances. Talk to your SF Wealth financial adviser for SMSF advice that’s right for you.

Share it!