What is a SMSF?

SMSF stands for self managed super fund. SMSFs are super funds set up by individuals or a group of less than five people. SMSFs must meet a number of requirements:

  • Have a trust deed that meets the requirements of the Superannuation Industry (Superannuation) Act 1993 (SIS Act). 
  • Members cannot be employees of other members of the fund unless related. 
  • Trustees cannot receive any remuneration for their services. 
  • All members must be trustees or, if the trustee is a company, all fund members must be directors of the trustee company. 
  • Only members can be trustees or directors of the trustee company.

SMSFs with only one member have slightly different rules.

Who can be a member of a self managed super fund?

Most people can set up their own SMSF for their superannuation guarantee and personal contributions. Employees who are not eligible for super choice may only be able to use an SMSF for personal contributions.

You cannot be a member of a SMSF if you:

  • Are under 18 years old.
  • Have criminal convictions relating to dishonest behaviour.
  • Are an undischarged bankrupt.
  • Have committed a serious breach of the SIS Act.
What are the trustee responsibilities?

SMSF trustees are legally responsible for all decisions concerning the fund. Part of your responsibility as trustee is to ensure you understand the rules governing your fund and to keep abreast of any legislative changes. Other responsibilities include:

  • Acting honestly in all matters concerning the fund.
  • Exercising the same degree of care, skill and diligence as an ordinary person.
  • Acting in the best interest of fund members.
  • Retaining control over the fund.
  • Keeping money and assets of the fund separate from other monies or assets.
  • Developing and implementing an investment strategy.
  • Providing members with access to certain information, such as the financial situation of the fund.

Administrative responsibilities include:

  • Keeping accurate and accessible accounts for the fund. Accounts must detail the financial position of the fund and its transactions and must be kept for at least five years.
  • Preparing an annual operating statement and annual statement of the fund's financial position, which must also be kept for at least five years.
  • Maintaining minutes of all trustee meetings and recording any changes to the trustees along with each member's agreement to act as a trustee. Each of these documents must be kept for 10 years.
  • Retaining copies of all annual returns lodged for a period of 10 years.
  • Retaining copies of all reports given to members for 10 years.
  • Reporting all contributions made to the ATO by specified dates each year.
What super rules must a trustee follow?

Trustees must comply with the Superannuation Industry (Superannuation) Act 1993 (SIS Act). The Australian Taxation Office (ATO) regulates SMSFs to ensure they comply with these rules and regulations.

What is the 'Sole Purpose' test?

SMSFs can only invest in assets that meet the sole purpose test, which means they must be for the core purpose of providing benefits for retirement. This means trustees cannot derive any current day benefit from assets purchased.

SMSFs are also allowed to provide benefits for ancillary purposes such as financial hardship or compassionate grounds subject to super rules and regulations.

What types of contributions can a SMSF accept and who can make them?

SMSFs can accept concessional contributions and non-concessional contributions.

Mandated employer contributions include:

  • Superannuation guarantee contributions.
  • Employer contributions above SG or award obligations.
  • Superannuation guarantee shortfall components.
  • Award-related contributions.
  • Certain payments from superannuation holding accounts special account.
  • Self employed personal contributions (that a tax deduction has been claimed).
  • Salary sacrificed contributions.

Concessional contributions are those that a tax deduction has been or will be claimed for those contributions.

Concessional contributions can be accepted for members at any time regardless of their age and number of hours worked.

Non-concessional contributions include:

  • Superannuation guarantee contributions.
  • Employee personal contributions.
  • Self-employed personal contributions (where no tax deduction has been claimed).
  • Other personal contributions and spouse contributions.

There are limits on the types of non-concessional contributions an SMSF can accept:

  • Members under 65 can accept non-concessional contributions where they have quoted their tax file number.
  • For members between 65 and 69 you can accept non-concessional contributions if the member is gainfully employed (worked at least 40 hours within a period of 30 consecutive days in the current financial year), or non-concessional contributions if the member has quoted their tax file number
  • For members between 70 and 75 you can accept employer or member contributions if the member is gainfully employed, or member contributions if the member has quoted their TFN or the contribution is received on or before 28 days after the end of the month the member turns 75. You cannot accept spouse or voluntary employer contributions
  • For members 75 and over you cannot accept any non-concessional contributions
What are the trustee’s responsibilities when managing the fund’s investments?

All SMSF trustees must prepare an investment objective for their fund and implement an investment strategy to achieve it. The investment strategy must reflect the fund's purpose and circumstances and detail how it will:

  • Maximise member returns within an acceptable level of risk.
  • Diversify across a range of assets (for example, shares, property, fixed interest).
  • Pay benefits and costs as required.
  • Meet member needs taking into account individual ages, income levels, employment and retirement needs.

Other responsibilities include:

  • Invest according to their investment strategy.
  • Ensure investments meet the sole purposes test.
  • Make investments that will generate income for retirement.
  • Keep all records concerning investment decisions for 10 years.
  • Deal on an ‘arms length’ basis.
  • Obtain accurate market valuations of the fund’s assets.
  • Secure the fund’s assets.
What types of investments can a SMSF make?

All investments must meet the sole purposes test.

SMSFs can invest in traditional assets such as shares, property, bonds and cash as well as more complex financial instruments such as options and certain kinds of warrants.

While superannuation law doesn’t stipulate what an SMSF can and can’t invest in, there are restrictions on the entities a fund can invest in and acquire assets from. For example, SMSFs cannot:

  • Acquire assets from a related party.
  • Allow in-house assets (such as a loan, investment or lease of a fund asset to a related party) to exceed 5% of total assets.
  • Borrow money except in limited circumstances.

It is best to seek professional advice if you are considering investing in more complex or non-traditional investments.

When can members access their super?

Members can access their super benefit tax-free at the age of 60 as a lump sum or pension.

Members who want to access their super as a lump sum or commutable retirement income stream will need to be retired and of preservation age. A commutable income stream provides the flexibility to convert an income stream into a lump sum at a later date.

Your preservation age depends on your date of birth.

Your date of birth

Your preservation age

Before July 1960

55

July 1960 to June 1961

56

July 1961to June 1962

57

July 1962 to June 1963

58

July 1963 to June 1964

59

After June 1964

60


If you are aged between 55 and 60, you can ease yourself into retirement under the Government’s Transition to Retirement rules. This way you can continue working full or part time while drawing an income from your super.

How are SMSFs taxed?

There are three levels of taxation on SMSFs.

Contributions tax
If the money paid into your super has yet to be taxed, it will attract a 15% tax on the way into the fund. This is known as concessional or salary sacrifice contributions. There is no contributions tax if your money has already been taxed. This is called non-concessional contributions.

Tax on earnings
While in the accumulation phase, the income you earn on your investments within your SMSF is taxed at a maximum rate of 15%. Capital gains are also subject to income tax.

When the SMSF is in the pension phase, all income and capital gains are tax-free.

Tax on benefits
There is no tax on lump sum super or pension benefits paid to people age 60 and over, provided a condition of release has been satisfied.

If you roll your benefit into a superannuation income stream product, you pay no tax on investment earnings (which includes any realised capital gains). You will also pay no tax on your income payments if you're over 60 or have satisfied a condition of release. If you have reached your preservation age and are under 60, your pension may be taxed at your marginal tax rate. A 15% tax rebate may apply.

Where can I find more information about SMSFs?

Useful websites:

What SMSF investment options does Vanguard offer?

SMSF investors can invest in any of Vanguard’s index funds depending on the size of your fund. Both offer a choice of low cost, single sector and diversified investment options – all managed with Vanguard’s proven indexing approach.

Retail managed funds ($5,000 minimum)
Vanguard’s retail managed funds offer a choice of professionally managed single and multiple sector investment options. The minimum initial investment is $5,000 per fund. Find out more 

Wholesale managed funds ($500,000 minimum)
Vanguard’s wholesale managed funds offer an extensive choice of investment options and low wholesale fees. Find out more