Self Managed Super Funds | Invest Blue
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Self Managed Super Funds

A self-managed super fund or SMSF is a special type of trust that has been established to provide benefits for members and their dependents on retirement or death. Unlike other trusts, they generally have no finite life and can continue forever unless wound up. They enjoy the same generous tax concessions available to other types of superannuation but can provide a much greater level of flexibility in many areas including investment options, benefit design and estate planning.

SMSFs are most suitable for members who want to take a more active role in their investment choices. It is also a powerful estate planning tool and, if structured correctly, can provide a higher degree of certainty regarding beneficiary entitlements than other types of superannuation or even a Will. It can also be more economical to run if the Fund is large enough.

There is a range of benefits, in addition to all the usual advantages of superannuation generally, arising from the use of SMSFs.

Benefits Arising From The Use Of A SMSF

You have complete control over the investments of the Fund. Subject to an appropriate investment objective and strategy you are able to invest in a wide range of assets and implement a wide range of strategies.
Most Funds contain conventional investments such as cash, fixed-term deposits, shares, managed funds and real estate but may also hold more exotic assets such as bullion, fishing licences, water rights, plant & equipment, wine and art.

Permanency & Portability
The Fund continues unless you wish to wind it up. This can allow unused tax deductions, particularly those available for payouts on death, to pass through to future family members. It is totally portable.

Diverse Investment Choice
One of the benefits of an SMSF is the ability for members/trustees to control their investments. Each member may have their own investment strategy and can invest in most of the same types of assets they could invest in outside the Fund. The Trustee must formulate and implement an investment strategy which is usually achieved with the assistance of a specialist adviser.

Contributions in Specie
You are able to contribute certain assets including listed shares, units held in managed funds, and business real property directly to the Fund instead of cash if you wish. There is also a limited ability to transfer other assets as well. Advice should be taken beforehand. For contribution purposes, these transfers are treated the same way as if they had been contributions in cash.

Jack is eligible to make a $50,000 concessional contribution this year but he finds himself short of cash. He does own $50,000 in shares but he does not want to sell them as he feels they have considerable growth potential. Using the correct paperwork Jack transfers the ownership of the shares from himself to his Fund. He can now take the tax deduction he is allowed under the concessional contribution caps.

Withdrawals in Specie A word of caution, however. The transfer is regarded as a “disposal” of the shares so Jack may be liable for capital gains tax personally. Also, the Fund will have to pay 15% tax on the concessional contribution of $50,000 when the tax returns are lodged so there will need to be $7,500 available at that time.

Benefits may also be paid in specie as a lump sum withdrawal (pensions can only be paid in cash) with no restriction as to the type of asset.

Your Fund is able to borrow under strict rules. This can enable your Fund to acquire an asset of a greater value than would otherwise be possible and is often used to purchase the member’s business premises.

Jim & Mary run a successful fish & chip shop from rented premises that the owners wish to sell. They believe that the premises is an excellent investment and would like to secure it by buying it themselves but they don’t have the means to do so. The premises is worth $500,000. They have a combined balance of $400,000 in their super fund. They decide to buy the property using their Fund and an appropriate borrowing trust structure. Their Fund borrows $250,000 and uses another $250,000 (plus on costs) of the Fund balance to acquire the property. They lease it from the Fund. Not only are they now paying rent to “themselves” but the property is owned in a way that protects it from their creditors and is appreciating in value in a tax effective environment.


Where an accumulation account and pension account exist in the same Fund a different tax result can occur if ownership of an asset is segregated within the Fund. The realised capital gain on an asset held in a current pension account is tax-free even if it was acquired before the pension commenced.

The assets in Jan’s Fund were acquired whilst she was still working and her Fund was in accumulation mode. She now has a member balance of $1,000,000 and would like to retire now that she has reached 60. She would like to use $350,000 of her Fund balance to pay out the loan on her house. If she sells some of her Fund investments there will be 10% capital gains tax payable if the Fund is in accumulation mode. So she starts a pension with her Fund balance first. The sale is now tax exempt in the Fund. Because she is over 60 she is then able to withdraw the $350,000 tax exempt as well.

Tax on benefits paid to adult children on death is often an important consideration. It is often possible for strategies to be put in place to ensure that no beneficiary tax is payable. This is a specialist area and advice should be taken to ensure the steps are properly considered and implemented.

Fred is a 64 year old retired widower with a 40 year old independent son, David. Fred has $400,000 in his super account that he has accumulated over his working life. Fred is aware that David will be taxed at 16.5% of this amount as it is all a taxable component. Fred decides to withdraw the full balance in tax free cash, recontribute it to his new self managed super fund as a non-concessional contribution and start an immediate pension. This will alter the tax situation so that, whatever the fund may grow to in the future, David will not have to pay tax on the eventual death benefit payout.

Customised Estate Planning and Benefit Flexibility Costs

The cost of administering an SMSF is less than the charge structure of comparable institutional Funds if the Fund is large enough. 2009/10 fees for the administration provider used by Invest Blue, Cavendish, will generally be around $1,600 to $2,200 per annum for most Funds irrespective of size. In addition, our auditor will charge $435 and the ATO $150. This will be the same irrespective of the size of the Fund so a $50,000 Fund could incur a 5% fee whilst a $1M Fund may only pay 0.25%. It is generally accepted that a combined member balance of around $220,000 is necessary before an SMSF becomes cost-effective.

An SMSF, subject to the governing rules, allows you to create a permanent binding death benefit nomination. Trustee powers are significant and are difficult to challenge as an SMSF is not subject to the Superannuation Complaints Tribunal. SMSFs can, therefore, be a more powerful wealth distribution structure than even a Will. SMSFs may also be subject to side agreements, otherwise known as SMSF Wills, which can impose significant structure around the payment of death benefits. These can be particularly effective in the case of blended families where the member would like to support their surviving spouse but ultimately leave their residual benefit to children from a previous marriage. Great care must be taken when establishing these arrangements to ensure they are practical, valid and enforceable.

Considerations For The Use Of SMSFs

There are a few key areas that should be carefully considered in relation to the use of a Self Managed Super Fund.

All decisions and responsibilities associated with managing the Fund rest with you as trustee. In addition, all superannuation Funds have to comply with rules and deadlines. As trustee, you are responsible for making sure the Fund meets all requirements on time. Even if you outsource this function you are still ultimately responsible though you may have some legal recourse against those to whom you have outsourced.
Penalties exist for non-compliance ranging from $110 to a 46.5% penalty on the assets of the Fund, a $220,000 fine and up to 5 years jail. Compliance is crucial when it comes to SMSFs. Compliance means ensuring that the Fund is run in accordance with the Trust Deed and with all the laws that surround SMSFs.

Only 4 Members
As only four people can be members of the Fund at any given time multiple Funds may be required to cater for larger member numbers or difficult estate planning considerations as may be found in “blended” families.

It is not necessary for each member to reside at the same address or even in the same State. It is necessary for at least half the members live in Australia or to have appointed Attorneys who do so. If this condition cannot be satisfied the Fund may need to be wound up or converted to a Small APRA Fund which is similar in many respects to a self-managed superannuation fund but has an approved trustee in place. It is important that the residency conditions are satisfied.

Invest Blue offers complete SMSF administration services through SMSF Complete.


Only some of the benefits of SMSFs have been discussed in this article. Contact your local Invest Blue office for more information about SMSFs and whether one is appropriate for your situation.

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.