Kate Cooper

Australia’s self-managed superannuation fund (SMSF) sector recorded its strongest ever annual growth in 2024–25, with 33,224 net new funds established – a 91% increase on the prior year.

New research released yesterday by OKX Australia, Voting with Their Super; Digital assets, SMSFs and the structural transformation of Australian retirement savings, based on a survey of 808 investors conducted by CoreData, suggests that digital assets are a significant factor in this acceleration, not a marginal footnote to it.

“Australians under 45 now account for 45% of all new SMSF creation over the past five years, despite making up just 15% of the existing trustee population. Among those bringing digital assets into their fund, 46% of trustees with cryptocurrency in their SMSF say the ability to invest in digital assets was a key driver in establishing the fund.”

The figures point to a clear investor preference for asset access and control. APRA-regulated super funds currently offer limited or no meaningful pathway to digital asset exposure. A growing cohort of Australians appears to be establishing their own structure to access it within the superannuation framework.

Digital assets now account for $3.2 billion in SMSF holdings – up from $240 million four years ago. The number of SMSFs holding digital assets has grown by 333% over five years, making it the fastest-growing asset class tracked by the ATO within the SMSF system.

Two cohorts, one direction

The research identifies two distinct groups driving SMSF growth. The first: established investors with significant balances who want greater control over how their retirement savings are invested. The second: a younger cohort with specific conviction in digital assets who have limited direct pathways to them through traditional funds.

Kate Cooper, Chief Executive Officer of OKX Australia, said: “Australians are voting with their super and they’re not waiting for managed funds to catch up – they’re establishing their own structures to access the asset classes they have conviction in. The data suggests this is a structural shift, not just a cycle. SMSF growth reached its highest level on record in 2024-25, under-45s are its fastest-growing cohort, and digital assets appear to be an important catalyst. The financial services industry is largely watching from the sidelines.”

Significant allocations, not marginal positions

Among SMSFs holding digital assets, 47% allocate more than half the entire fund to this asset class. 28% allocate more than 90%. The median allocation of $80,966 exceeds the median allocation to overseas shares and unlisted equities. These are allocations that reflect each trustee’s individual assessment of the role digital assets play within their broader portfolio strategy – ones that carry both significant weight and meaningful concentration risk.

Key findings from the research include:

• 46% of trustees with crypto in their SMSF say the ability to invest in digital assets was a key driver in establishing their fund
• Over a third of crypto-holding trustees established their SMSF after their first digital asset purchase with one in five doing so in the same year
• 80% of SMSF trustees under 40 who don’t currently hold digital assets say they would consider doing so
• Among SMSF trustees under 40, 66% trust digital assets as an investment, compared to 36% of those aged 40 and over
• Australians under 50 are set to receive approximately $2.3 trillion through intergenerational wealth transfer by 2040, a generation likely to place greater value on digital asset access and broader investment choice in retirement structures

The compliance and advice gap

The growth of digital assets in SMSFs is running ahead of the infrastructure needed to support it. 46% of crypto-SMSF trustees report difficulty meeting ATO compliance requirements. Only one in ten financial advisers currently have digital assets on their Approved Product List, meaning advisers are present in SMSF relationships but formally unable to guide clients on the asset class they are most actively acquiring.

The research found an association between adviser involvement and stronger reported outcomes: advised trustees holding digital assets reported a confidence score of 6.0 out of 7.0 versus 5.3 for unadvised peers, and a median return of 25% compared to 20%. A quarter of trustees currently unlikely to invest in digital assets say an adviser recommendation would change their mind.

Cooper added: “The data suggests that advice may make a real difference to outcomes for trustees holding digital assets. But fewer than one in ten advisers can formally address this asset class with their clients. That’s a structural gap the industry needs to close – both for the sake of trustees navigating a complex asset class, and for the advice profession’s relevance to a fast-growing segment of the SMSF market.”

Looking ahead: tokenisation and the next wave

The research identifies tokenisation of real-world assets as a potential next phase in self-directed retirement. As blockchain-native ownership infrastructure extends to real estate, private credit, and infrastructure assets, the flexibility of the SMSF structure may become an advantage for some trustees over managed fund alternatives – and the underlying preference for investment autonomy may intensify.

Read the report.

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Richard Chesworth

The rising interest rate environment has highlighted the importance of having borrowing structures in an SMSF that can be comfortably supported over time, not lending that has been stretched to extremes, says Richard Chesworth, SMSF lending specialist at Bluestone Home Loans.

Chesworth says success in SMSF lending is not measured by how much a client can borrow at settlement, but whether the loan still works when conditions change.

“Some lenders are pushing SMSF loans at 90 percent LVR, often framed around avoiding lenders mortgage insurance or entering the market sooner. That strategy may suit individuals for their home finance or purchasing an investment property, however in the concessionally taxed environment of superannuation at 15 per cent, high gearing may deliver a poor outcome to the SMSF,” Chesworth says.

“At such a high gearing level, rent and contributions may often be fully absorbed through interest and holding costs of the property. Until the asset experiences significant income growth, the income streams are directed to meeting the borrowing obligations, rather than building retirement savings.”

He says SMSFs operate under tighter constraints than personal investment loans. Contribution caps are fixed, cash flow buffers are limited, and there is little room to manoeuvre if circumstances change.

“At very high LVRs, even small shifts in interest rates, vacancies or expenses can put pressure on the fund and meeting the SMSF’s objectives.

“Lower LVRs, on the other hand, are more likely to deliver stronger rental coverage, reduced sensitivity to rate movements, greater resilience during vacancies, and a clearer path toward neutral or positive cash flow.

“Furthermore, once positively geared, the SMSF trustee has greater flexibility to support the diversification needs of the SMSF.”

Chesworth says that brokers have a crucial role to play to ensure SMSFs end up with the right structure for their members.

“Pricing still plays a role, but in the current environment, brokers are using pricing strategically.

“Rather than chasing the lowest headline number, brokers are looking to lending partners who provide value in delivering on their customers’ SMSF needs. Equally many are looking for pricing that genuinely supports serviceability and cash flow, without forcing clients into higher leverage just to make the deal work.” 

According to Chesworth, this thinking underpins Bluestone’s current 0.25 percent SMSF campaign.

The campaign is designed to help brokers:

• improve serviceability outcomes for SMSF clients
• ease repayment pressure as rates rise
• and support moderate LVR strategies that are built to last

“Our approach to SMSF lending is not about pushing maximum leverage or chasing short‑term trends. In this market, pricing has to work hand in hand with structure and we are seeing brokers using pricing to strengthen serviceability, not to justify unnecessary gearing.

“We believe that mortgage brokers who work with SMSF trustees are ideally placed to help them make borrowing decisions they can live with.”

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Sean O’Malley

AMP Bank is re-launching SuperEdge, its residential Self Managed Super Fund (SMSF) lending solution, marking the Bank’s return to SMSF property lending for brokers and their customers.

With more than $1 trillion in assets under management and over 1.2 million members, SMSFs are a major part of our retirement system. Many trustees, particularly pre-retirees, want to invest with greater control and confidence, while maintaining the flexibility and liquidity they need as retirement approaches.

SuperEdge will meet that need, providing a transparent, well-governed lending option delivered through brokers and directly through AMP Bank’s home lending specialists, and supported by a strong credit and compliance framework.

It also includes practical features that reflect how SMSF trustees manage cash flow and risk – including flexible repayment options and an optional SMSF offset facility – alongside a broker-first digital experience designed to reduce rework and speed up decisions.

Sean O’Malley, AMP Bank’s Group Executive, said AMP Bank’s return to SMSF lending is about providing greater choice at a time when retirement planning is becoming more complex.

“Australians approaching retirement are balancing two competing pressures – enjoying life today, while making sure they’ll have enough for tomorrow. That tension is driving demand for solutions that offer more control, flexibility and confidence.

“SMSF trustees want to retire on their terms – but without the right structure and support, those decisions can become harder. SuperEdge is designed to provide trustees with a competitive, transparent and responsible lending option as they build long-term wealth.

“As a challenger bank, we’re thinking differently about lending – using clearer policy settings and smarter digital checks to deliver a better experience, while staying focused on long-term customer outcomes.”

Michael Christofides, AMP Director of Lending & Everyday Banking, said SuperEdge is built around the realities of SMSF lending – for both brokers and trustees.

“SuperEdge combines practical features, like flexible repayments and an optional offset, with a digital broker experience that helps reduce friction and improve turnaround times.

“We’ve built in automated SMSF structure checks and document validation to help cut rework – while maintaining strong responsible lending settings.”

SuperEdge is currently in a pilot testing phase, with broader market availability targeted for Q1 2026.

Product features

• Flexible repayments: Principal & Interest or Interest-Only (up to five years) supported by a documented transition plan.
• Optional offset facility: Supports SMSF cash flow management while maintaining asset separation.
• Broker-first digital experience: Lodge and track applications in one place, with automated SMSF structure checks, LRBA prompts and document validation to reduce rework and speed up decisions.
• Fees: competitive flat fees that include offset flexibility.

Responsible lending settings

• Available to corporate trustee structure only
• Maximum LVR of 80%
• Minimum SMSF net assets of $300,000
• Liquidity test: requiring ≥10% liquid assets post-settlement
• Property location restrictions: Zones 1 & 2 (residential only; no off-the-plan, construction, rural or commercial securities, and no owner-occupied use)

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Tim Steele

Leading cloud-based accounting and Self-Managed Super Fund (SMSF) administration software provider Class has added certified commercial property valuations to its capabilities, delivering accountants comprehensive market valuation reports and rental assessments designed to meet audit needs.

This market leading capability has been introduced to ensure trustees are able to provide the ‘objective and supportable’ data required by the Australian Taxation Office (ATO) to accurately value property held within an SMSF.^[1]

Last year, the ATO identified property valuations within SMSFs as a critical compliance issue, revealing more than 16,500 properties had not been revalued for over three years, signalling an expectation for valuations to be current and reflect market conditions. ^[2]

According to the Class Annual Benchmark Report 2025, almost 30% of SMSFs on Class held direct property investments in FY25. Of these funds that held residential property, it on average represented half of the value of the fund.

The new commercial valuation feature provides access through PropTrack to independent, certified valuers assessments. It also enables retrospective valuations, streamlining a previously complex and often time-consuming task.

Valuations can be especially challenging for commercial properties, where rental yields and lease agreements are crucial to the process. The use of related-party real estate agents to provide valuations is increasingly regarded as non-compliant due to concerns around independence and potential conflicts of interest.¹

Class CEO Tim Steele commented commercial property valuations are a timely enhancement for accountants: “Class is continually listening to our clients and innovating to ensure they stay ahead of regulatory change. By removing friction that exists in current processes, we are enabling accountants and administrators to more efficiently service the needs of their clients.”

With the proposed Division 296 tax targeting high-balance SMSFs, accurate and secure valuations are more important than ever. Outdated property values could result in incorrect tax outcomes, making prompt and reliable valuations essential.

PropTrack’s Executive Manager of Product, Shelley Horton, said: “PropTrack valuations as a service solution provide accurate, up-to-date information, making the process smoother and more transparent. It gives SMSF trustees the tools to go beyond simply stating a property value by delivering a clear, well-documented process that meets ATO expectations, showing the data used, the valuation method, and any assumptions made.”

Through PropTrack, certified valuers provide desktop valuations within eight business hours and short-form valuations within 48 hours, providing clients with increased efficiency, improved accuracy, and compliance.

The introduction of integrated commercial property valuations will be released to all class customers this quarter and is part of Class’s program of enhancements to deliver efficiency for financial professionals.

It follows Class’s integration with Australia’s leading property data providers to offer direct access to residential property title searches and integrations with all four major Australian Share Registries.

———

Notes:
[1] ATO Guide to valuing SMSF Assets
[2] ATO targets property valuations in countdown to new $3m super tax

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Diversification across asset classes and sectors was found to be a hallmark of advised SMSF accounts.

A new report on investor trading trends reveals increasing differences in asset allocation between advised self-managed super funds (SMSFs), self-directed SMSFs and non-SMSF investors.

Diversification across asset classes and sectors was found to be a hallmark of advised SMSF accounts identified the SMSF Under Advice report, just released by wholesale trading platform AUSIEX, which provides trading solutions to over 4,400 investment advisers and 1,000 dealer groups across Australia.

“Advised SMSFs are more likely than self-directed SMSF to have holdings in passive ETFs, active ETFs, LICs, LITs hybrids and AREITs than self-directed SMSFs,” found the report.

Brett Grant, Head of Product, Customer Experience and Marketing at AUSIEX, says the report identifies “increasing allocation of advised SMSFs to exchange traded funds (ETFs) – in stark difference to self-directed SMSFs and non-SMSF retail accounts, both of which tend to prefer direct investments in equities”.

Mr Grant adds, “advised SMSFs also tend to be more diversified in terms of the number of unique securities held as well as sector allocations.  For example, advised SMSF accounts held 15 securities on average, in comparison to 12 for self-directed SMSFs.

“The extent to which financial advisers can add value to their clients’ portfolios throughout the market cycle was again evident in this year’s analysis,” he says.

Generational differences

The AUSIEX report also identifies differences between generations. “For instance, we found advised Generation X SMSFs allocated significantly more to healthcare stocks than their self-directed counterparts and less to industrials,” Mr Grant cites.

“Advised Millennial SMSFs also allocated significantly more than their self-directed SMSF counterparts to healthcare, as well as industrials, real estate and consumer discretionary stocks.”

Generation X and Millennials were also active on the new account front. The latter’s share of total new trading accounts jumped from 6.7% to 9.8% year-on-year as more people in this age group (29-44 years) reached the point at which they have sufficient assets to justify operating SMSFs.

The growing investing power of Millennials was also evident in the trading patterns of each generation. Millennials had the largest year-on-year increase in trading volumes (up 35.5%) among advised accounts in 2024, compared to Generation X (20%) and Baby Boomers (15%).

Mr Grants says, “it appears evident that younger SMSFs investors may have different trading preferences to their parents, not just because of their stage of life but also due to their familiarity with securities such as exchange traded funds and even cryptocurrency”.

Future investment trends

As for other asset classes, the report identified increased enthusiasm and traded value in cryptocurrency ETFs and crypto-infrastructure ETFs – which more than doubled (218%) across all SMSF accounts in the final quarter of the 2024 calendar year.

Mr Grant adds, “another asset allocation issue which will continue to attract significant industry attention going forward is the phasing out of bank hybrids following the announcement by the Australian Prudential Regulatory Authority (APRA).  It will be interesting to see what the investment industry produces as alternatives and what investors will shift towards – and we have already seen some product managers respond with an increase in fixed income ETFs.”
ESG differences

Advised SMSFs also appeared to find ESG characteristics more attractive than other investors, allocating almost 2.7% of their total exchange traded products (ETPs) portfolio value, compared to just over 2% for self-directed SMSFs.

What’s next?

Mr Grant suggests, “as we look ahead into the 2025 calendar year, a federal election, threatened trade tariffs, potential rate cuts and a record high S&P/ASXASX200 SMSF investors, advisers and trustees have much to grapple with.

“However, our analysis continues to paint a picture of advised SMSFs as well-diversified, active, agile and forward-looking investors, well-positioned to navigate challenging conditions and grow their wealth.”

“That said, advisers need to ensure their value proposition is well known and understood, especially considering our data found a year-on-year fall in the proportion of new advised Generation X accounts, when the broader trend – and that on the self-directed side is towards this generation growing in terms of its significance as a controller of overall wealth in the system.”

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The number of newly established SMSF trading accounts on the AUSIEX platform (across both advised and self-directed segments) rose 14.5% year on year in number.
Advised SMSFs drove most of this new account growth rising 12.3% year-on-year in overall account number. There was also a rebound in new self-directed SMSFs trading accounts from the prior year, up 19.8%.

Brett Grant, Head of Product, Customer Experience and Marketing at AUSIEX, says, “We’ve seen advised SMSF accounts grow in number last year, and continue to grow at the start of this year – and trading more actively.”

After a surge in interest in SMSFs among younger generations during COVID-19, Baby Boomers returned to make up a stronger proportion of new SMSF accounts, noted Mr Grant. Baby Boomers accounted for over 50% of new SMSFs accounts, both advised and self-directed.

There was also an increase from Millennial SMSF investors, up 9.8% year-on-year. This was mostly driven by male millennials. By contrast, there was a year-on-year decline in new Generation X female SMSF accounts.

On the self-directed side, Generation X increased its share of new accounts year-on-year, up to over 31%.

Victoria reported 24% in growth in the number of new SMSF accounts, up from 30% in 2023. New South Wales remained in second place marginally increasing its share from just under to just over 25% of new SMSF accounts. Queensland also increased its share to just over one in five new SMSF accounts.

“SMSFs traded more in 2024 than they did the previous year, up 7.5% (by number of trades) year on year, found the AUSIEX report. The increase we believe was in part due to increased additional interest in global equities, in particular global equity and US equity exchange traded funds (ETFs),” notes Mr Grant.

The value of holdings also increased more for advised SMSFs than for non-advised SMSF accounts. “These gains appear to have been supported significantly more diversified holdings, across sectors and securities,” says Mr Grant.

“This includes an increasing allocation to ETFs – which is a stark difference to non-SMSF accounts and self-directed SMSF accounts which prefer direct equities.”

“Despite concerns about the future of the wholesale investor test, the potential Division 296 superannuation tax, compliance requirements and cost of advice concerns, SMSFs remain in favour with distinct groups of investors and advisers who value greater flexibility when it comes to growing and protecting wealth.”

Read the report.

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SMSF Access is a simple, integrated SMSF solution that’s been designed for advised clients.

As part of the HUB24 Group’s commitment to delivering innovative solutions that enable advisers to meet the needs of clients throughout each life stage, HUB24 announced it has collaborated with advisers to enhance its SMSF Access solution.

Leveraging the collective capabilities of HUB24, Class and NowInfinity, SMSF Access is a simple, cost-effective, integrated SMSF solution that’s been designed for advised clients with simple investment needs looking to access the benefits of an SMSF without the cost and complexity of traditional solutions.

The SMSF sector continues to attract more Australians with SMSFs now comprising more than one trillion dollars of the $4.08 trillion superannuation industry.

Recent research from the Class Annual Benchmark report, showed millennials are establishing SMSFs at a faster rate than any other demographic, with growth increasing by 5% over the past six months to 33.6% (up from 28.5% as of 30 June 2024). These figures demonstrate the increasing popularity of SMSFs amongst a younger cohort.

Furthermore, Investment Trends research found 36% of High Net Worth (HNW) investors have, or are planning to establish, an SMSF to help enable the transfer of wealth to family members.

HUB24 Executive Group Strategy Greg Hansen said these figures highlight significant opportunities for advisers to enhance their advice proposition to meet the needs of early-stage wealth accumulators, later stage retirees, or clients seeking choice, flexibility or portability.

“Since launching we’ve been collaborating with advisers to further develop our product offering and deliver scalable, cost-effective and efficient client value propositions. Through ongoing investment in innovation, solutions like HUB24 SMSF Access support growth in the overall SMSF segment by enabling advisers to service a new customer demographic.

“HUB24 SMSF Access is designed for advised clients who want to invest in assets on platform and typically don’t have an accountant relationship. It offers all the benefits of HUB24’s market leading platform, including access to the full range of IDPS investments, along with establishment and administration services, making an SMSF simple and easy to manage.

The solution also offers a simple fee structure and, where eligible, the ability to claim RITC on advice fees – which potentially lowers the cost of advice.

Mr Hansen said: “As their balances grow and their investment needs change, advised clients can transition to a comprehensive SMSF solution without the need to sell down any of their existing investments.”

The new features and enhancements offer many additional benefits including a streamlined application process, faster access to Super Guarantee (SG) contributions, a new Cash Statement report, GST registration, comprehensive SMSF information and fact sheets.

Delivered through HUB24’s professional development centre, advisers also have access to the SMSF Academy which provides valuable insights on the client and business benefits of SMSFs including key trends shaping the industry, how younger investors are driving SMSF growth, advice strategies and solutions for future clients.

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Nicholas Ali

SMSF administrator Neo Super has welcomed the proposed changes to legacy pensions, saying they are a game changer for SMSF members holding these products.

Neo Super Director of Technical Services Nicholas Ali says: “They offer much-needed flexibility, allowing members to commute their income streams in a way that suits their financial goals while reducing the administrative burden on trustees.

“For years, many of these legacy products have constrained members and driven up costs unnecessarily. This reform will not only simplify the management of these pensions but also provide much fairer and more equitable outcomes for members and their families.

“We identify this is a significant and welcome development, particularly as many legacy pensions have become inflexible, no longer suited to the needs of members, and often expensive to manage.’

The draft Treasury regulations regarding legacy pensions aims to modernise the treatment of non-commutable income streams, such as market-linked pensions, life expectancy and lifetime pensions.

Ali says: “The changes will provide individuals the opportunity to exit these arrangements more easily and efficiently over a five-year period. Additionally, reserves linked to these pensions can now be allocated to a recipient’s member balance without impacting contribution caps, providing further flexibility.

“Reserves in SMSFs created for other purposes can also be allocated to a member, though these allocations will count against their non-concessional caps rather than concessional ones. Importantly, members can use the bring-forward non-concessional contributions provisions, subject to Total Super Balance (TSB) rules.”

The proposed amendments, however, only apply to SMSF members, reinforcing the focus on this superannuation vehicle to provide tailored and strategic retirement solutions.

“This reform could provide considerable relief to many SMSF members, marking a step forward in making the superannuation system more adaptable and user-friendly, he says.

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Michael Hallinan

Now that the 2023/24 financial year is coming to a close, it will be necessary for individuals receiving pensions from their SMSFs, to ensure that the minimum pension requirement in relation to each of their pensions has been satisfied by 30 June 2024.

For individuals receiving transition to retirement pensions where they have not yet retired for superannuation purposes or attained age 65, it is also necessary to ensure that total pension payments do not exceed the 10% ceiling applying to transition to retirement pensions.

The minimum pension requirement is satisfied, if the total pension payments received by the individual during the 2023/24 financial year equals or exceeds a calculated minimum based upon a percentage of the pension balance at 1 July 2023, where the percentage is related to the attained age of the individual as at 1 July 2023.

The percentage factors are listed below:

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Advisers need a good understanding of self-managed superannuation funds and the tax requirements that apply to clients using SMSFs.

With assets forming nearly one third of Australia’s extensive superannuation savings pool, SMSFs continue to proliferate. This article, proudly sponsored by Allianz Retire+, explores the tax benefits of using SMSFs and the tax regimen and requirements that apply.

When the first self-managed superannuation fund (SMSF) was established in 1999, it was a result of the Wallis enquiry to allow small businesses and the self-employed to establish and manage their own superannuation accounts.

Two dozen years or so later, at end December 2023 the SMSF sector had amassed total estimated assets of $913.7 billion. These assets are held by some 614,705 SMSFs, representing 1,146,724 members^[1]. Figure one illustrates the growth in SMSF assets, from both an average and median perspective, while figure two examines the number of SMSF establishments, windups and total numbers of both funds and members.

According to the latest ATO statistical report (December 2023), SMSF members are heavily invested in equities; listed shares comprise 29 percent of total SMSF assets. Cash and term deposits are the next largest investment, comprising 15 percent, followed by non-residential property at around nine percent.

Like all superannuation funds, SMSF trustees must meet the sole purpose test: to run their fund for the sole purpose of providing retirement benefits as outlined in the Superannuation Industry (Supervision) Act 1993 (SIS Act).

The rationale for SMSFs

There are several reasons given for eschewing a corporate, retail or industry superannuation fund in favour of an SMSF. The most common reasons are:

• direct ownership of assets (rather than beneficial ownership through a superannuation fund)
• able to own direct property (residential or commercial)
• able to borrow money via a closed trust (to be used for investment purposes)
• able to own a broader range of direct assets, including artworks and collectibles
• capacity to manage tax more effectively.

The ability to maximise the benefits of SMSFs will vary for each fund and be dependent on its investment objective and those of its members. However, the reasons outlined above are not relevant for all funds or members and, in some cases, benefits may be outweighed by the costs and time requirement associated with managing an SMSF.

Those requirements include:

• the trustees need the time and skills to manage an SMSF
• trustees are responsible for operating the fund within the law; failure to do so may lead to penalties for the trustee/s and tax consequences for the fund
• trustees need to make investment decisions for the SMSF that are in the best interests of all members; at the same time, they must understand and comply with the restrictions on investments applicable to SMSFs
• trustees must comply with ATO requirements for SMSFs – failure to do so can lead to a loss of tax concessions for the fund.

Importantly, it can be expensive to establish and manage an SMSF. The fees paid for an SMSF may be more than would be paid to another type of super fund. Each year, an SMSF needs to pay for an independent audit, which must be undertaken by an independent approved SMSF auditor that’s registered with ASIC. An approved auditor will:

• Examine the fund’s financial statements
• assess the fund’s compliance with super laws
• provide trustees with a report
• report any contraventions of the SIS Act to the ATO.

Once the audit has been finalised, trustees need to complete and lodge the SAR by its due date. If the SAR is lodged more than two weeks late, the SMSF won’t be able to receive contributions or rollovers until the SAR is lodged. Once the SAR is lodged, the trustee has to pay any tax liability and the annual supervisory levy.

The supervisory levy is a fee charged by the ATO and is added to the tax return for each SMSF. When the SMSF is assessed for tax, this levy is added to the total payable to the tax office. It is currently $259.

Most SMSFs also pay for additional help, such as:

• preparing the SMSF annual return (SAR)
• valuations of the SMSF’s assets at market value so to prepare the fund’s accounts, statements and SAR; some classes of assets must be valued and reported in a specific way and trustees must have evidence of the valuation available
• actuarial certificates for SMSFs paying income streams (pensions)
• financial advice
• tax advice
• legal fees
• assistance with fund administration
• insurance for members.

Unlike personal tax, the ATO does not send out a tax assessment to SMSFs. Therefore calculating the correct tax is up to the person preparing the return. The return is a comprehensive report on all the SMSF’s transactions and benefit payments.

SMSFs and tax

Each SMSF must be registered with ATO for both an ABN and TFN. If this isn’t done, the SMSF will not be registered as an SMSF and therefore not entitled to tax concessions. Importantly, if unregistered, employers will not be able to claim deductions for contributions they make to the fund.

One of the advantages of the SMSF structure is that like a corporate, SMSFs are deemed to have income (including contributions and investment earnings) and expenses for tax purposes. At 15%, SMSFs have a low tax that can be further reduced by offsetting expenses and other tax credits.

Because SMSFs can control when assets are disposed of, capital gains can be managed in a more targeted way. For example, an SMSF acquires an asset today and it appreciates by 75% by the time its members retire. That asset can then be sold to provide income to the complying pension stream with nil tax paid on the realised capital gain of the asset.

The adaptability of SMSFs enables trustees and their advisers to optimise tax efficiency for its members. By tailoring strategies to the individual circumstances of members, and leveraging options such as contributions, reserves, and distributions, trustees can mitigate overall tax liabilities within the fund. In contrast, within pooled superannuation fund, personal circumstances cannot be factored in as members have to be treated consistently.

The SMSFs structure also provides flexibility when it comes to managing taxable liabilities. An SMSF requires only one tax return despite potentially having up to six members. If the fund includes retired members who are tax-exempt, while others remain subject to a 15% tax environment, strategic allocation of earnings from the tax paying members to the retired members can yield tax advantages.

Income tax

The income of an SMSF is generally taxed at a concessional rate of 15%. To be entitled to this rate, the SMSF has to be a ‘complying fund’ that follows the laws and rules for SMSFs. For a non- complying fund, the rate of tax applied is the highest marginal tax rate.

Contributions

Certain contributions received by a complying SMSF are included in its assessable income and are usually taxed as part of the SMSF’s income at 15% (or 47% for non-complying SMSFs). These ‘assessable contributions’ include:

• employer contributions (including contributions made under a salary sacrifice arrangement)
• personal contributions that the member has notified the trustee they intend to claim as a tax deduction
• generally any contribution made by anybody other than the member, with limited exceptions such as spouse contributions and government co-contributions^[2].

These contributions are taxed in the SMSF as income, but at the concessional rate of 15% up to the contributions cap. The cap is currently $27,500 per year and is increasing to $30,000 at 1 July 2024. The non-concessional contribution cap, currently $110,000 will increase to $120,000 from the same date.

If a member fails to provide their TFN, the SMSF will have to pay additional tax on their mandated employer contributions and cannot accept other types of contributions. The additional tax rate is 34% for complying SMSFs and an additional 2% (for a total of 49%) for non-complying SMSFs.

The difference in the treatment of contributions between super funds and SMSFs is significant. Because contributions to SMSFs are treated as income, tax is levied once the expenses of the SMSF have been deducted.

Earnings

An SMSF in the accumulation phase will have its income earned from investments taxed at 15%. Franked dividends paid by an Australian company may entitle the SMSF to a tax credit, which will reduce its overall income tax liability. As with income received from contributions, income derived from earnings will be taxed on an after expenses basis.

Non-arm’s length income (NALI)

SMSFs must always transact on an arm’s-length basis. The purchase and sale price of fund assets should always reflect the true market value of the asset and the income from assets held by an SMSF should always reflect the true market rate of return. Any non-arm’s length income (NALI) is taxed at the highest marginal rate.

The ATO judges income to be NALI for a complying SMSF if it is:

• derived from a scheme in which the parties weren’t dealing with each other at arm’s length
• more than the SMSF might have been expected to derive if the parties had been dealing witheach other at arm’s length.

For example, the ATO considers income derived by an SMSF as a beneficiary of a discretionary trust to be NALI, as are dividends paid to an SMSF by a private company (unless that dividend is consistent with arm’s-length dealing).

NALI also includes income derived by an SMSF from a scheme where the parties weren’t dealing with each at arm’s length and where the fund incurred lower expenses in deriving that income than would be expected if the parties were dealing on an arm’s-length basis.

GST

Most SMSFs don’t need to register for GST although those with an annual GST turnover of more than $75,000 must register for GST. Annual GST turnover doesn’t include contributions, interest and dividends or residential rent or income generated outside Australia. It does include gross income from the lease of equipment or commercial property.

Capital gains tax

An SMSF capital gain is any profit made from selling an asset. It’s classed as income and taxed as such. Similarly, any loss made from selling an asset is deemed a capital loss. Both need to be included in the SMSF’s annual return to the ATO.

Because capital gains are treated as regular income and an SMSF’s income is taxed at the concessional rate of 15%, capital gains are also subject to a 15% tax.

If an asset has been held for more than 12 months before it is sold, its capital gain may be eligible for a tax discount of 33%. That means, only two-thirds of the capital gain will be taxed – i.e. at the rate of 10%.

A capital loss is not an allowable deduction and can only be used to offset against capital gains. If capital losses are greater than capital gains in a financial year, they must be carried forward to be offset against future capital gains.

If the capital gain is used to fund an income stream (i.e. a member’s pension) then zero tax will be applied to the proportion of capital gain funding the pension.

SMSFs in pension phase

When SMSF income is used to provide a pension stream, there is no tax at all. However, this concession is available only to funds that comply with the ATO’s requirements for SMSFs. For those SMSFs invested in Australian equities, franking credit refunds can be claimed from the ATO for any excess credits.

Investment income received by an SMSF is tax exempt to the extent that those assets are supporting retirement phase income streams. This income is called exempt current pension income (ECPI) and is claimed in the SAR once the SMSF commences payment of one or more retirement phase income streams.

An SMSF is not automatically entitled to ECPI – there are steps that the trustee/s must take to be able to claim it.

SMSFs and property investments

One of the key benefits of an SMSF is the ability to own property. There are two primary advantages to holding property inside an SMSF.

Firstly, there’s concessional tax on rental income; rent received by an SMSF will be taxed at a maximum rate of 15%. Some expenses related to ownership of the property will generally be tax deductible to the fund, lowering the effective tax rate. These expenses include such as rates and property maintenance.

Secondly, superannuation tax rates also apply to a capital gain resulting from an increase in the property’s value. Consequently, depending on when the property is sold, any capital gain the SMSF makes on its sale could be tax-free.

For example, if a median-priced residential property of $667,000 is bought by a typical investor and sold a decade later for double the value, their capital gains tax can be $157,000. If it eventually doubles again in value, the tax bill climbs above $300,000. If that property is held by an SMSF member in retirement, the CGT is zero after age 603..

Case study: Commercial property investment

Matt and Ben are business partners in a successful plumbing business. They’d been at school together, played football together and did their apprenticeship together. As their business grew, they sought financial advice to further develop and grow their business and its profitability.

A key part of the business plan was to establish an SMSF and to purchase a commercial property. To do this, Matt and Ben each rolled their personal super into the SMSF structure. A bare trust was then established to enable the SMSF to borrow additional funds to cover the cost of the property.

The business had been paying rent to a landlord for a commercial premises; it now pays a commercial level of rent to the SMSF. At the same time, Matt and Ben continue their super contributions, split between their original industry fund (to retain insurances) and the SMSF. This ensures the loan is repaid, other expenses can be met and, over time, other assets can be purchased.

The SMSF received a rollover of $220,000 from Matt and Ben and borrowed $400,000 to purchase the commercial property for $600,000. Using a mix of income from rent, contributions and bring- forward contributions, the financial strategy sees the loan being repaid within seven years when it is estimated the asset will be worth $1 million.

In this case, the SMSF would not need to be registered for GST. Although it is receiving rental income from a commercial premises, this income does not exceed $75,000 per annum. Tax liabilities arising from income received from contributions and rent will be offset by the expenses of the SMSF and its property asset.

Conclusion

The unique flexibility of SMSFs empowers trustees and their advisers to tailor strategies that optimise tax efficiency for members. This adaptability allows for a more personalised approach, considering individual circumstances and employing tactics such as contributions, reserves and distributions to minimise overall tax liabilities within the fund. In contrast to pooled superannuation funds where uniform treatment is mandated for all members, SMSFs offer a bespoke solution tailored to each member’s needs.

The streamlined structure of SMSFs simplifies tax management by requiring only one tax return. By leveraging this structure, SMSF trustees can strategically allocate earnings, particularly benefiting retired members enjoying tax exemption. As such, SMSFs not only offer enhanced control and customisation but also deliver tangible tax advantages, cementing SMSFs as a powerful tool for wealth management and retirement planning.

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Notes:
[1] ATO, Quarterly Statistical Report, December 2023
[2] Australian Tax Office

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