In this blog, Sean Gavin from Wheelhouse Advisory walks through the key fundamentals of Self-Managed Super Funds (SMSFs) – how they operate, how they’re taxed, and why professional advice is so important when managing one.
SMSFs are becoming increasingly popular, but they’re also one of the most misunderstood superannuation structures. Today, we break down the core concepts to help you understand how they operate and whether they may be suitable for your circumstances.
The sole purpose of an SMSF
Every SMSF must meet the sole purpose test – meaning the fund exists only to provide retirement benefits for its members.
An SMSF can have up to six members, and each member must act as a director of the trustee company. This structure gives members full control over investment decisions, but it also places legal, tax and compliance responsibility directly on the trustees.
Because of this, SMSFs require a higher level of involvement and understanding than retail or industry super funds.
Why most SMSF trustees use professional support
Managing an SMSF is complex. Trustees are responsible for:
- Investment decisions
- Compliance with superannuation and tax law
- Accurate reporting and record-keeping
For this reason, most trustees engage professionals – such as accountants, advisers and auditors – to ensure the fund remains compliant and operates effectively.
How SMSFs are taxed
Accumulation Phase
While the fund is in accumulation:
- Income earned by the SMSF is generally taxed at 15%
- This includes employer contributions, concessional contributions and investment income
- Capital gains on capital assets held for more than 12 months are taxed at 10%
Pension Phase
Once a member reaches retirement and starts drawing a pension:
- Income from pension-phase assets becomes tax-free
- This applies up to the transfer balance cap, which has increased to $2 million recently
This concessional tax treatment is one of the reasons SMSFs are often used as a long-term wealth strategy.
Borrowing within an SMSF
Generally, SMSFs cannot borrow money, except under a Limited Recourse Borrowing Arrangement (LRBA).
An LRBA allows an SMSF to:
- Borrow to purchase a single asset, such as property
- Hold that asset in a separate bare trust
If the loan defaults, the lender’s claim is limited only to that asset – protecting the rest of the fund’s assets. This structure adds complexity, which is why expert advice is critical before proceeding.
Contribution rules (from 1 July 2024)
Concessional Contributions
- Annual cap: $30,000
- Includes employer contributions and personal deductible contributions
- Unused cap amounts can be carried forward for up to five years. Available where your total super balance is under $500,000 at the previous 30 June
Non-Concessional Contributions
- Annual cap: $120,000
- Option to bring forward three years, allowing up to $360,000 in one year
- Useful for contributing larger amounts into super strategically
Accessing your super
You can generally access your super once you:
- Reaches preservation age and retires
- Turns 60 and ceases an employment arrangement
- Turns 65
Access can be taken as:
- A regular income stream
- A lump sum
- Or a combination of both
Once a pension commences, minimum annual withdrawal requirements apply, depending on your age.
Setting up an SMSF: what’s involved
Establishing an SMSF involves several steps, including:
- Legal setup of the trust and trustee company
- Opening a bank account
- Registering for an ABN and TFN
- Rolling over existing super balances
The process typically takes three to four weeks, though it can take up to 45 days depending on circumstances. Clear checklists and professional guidance can make this process far more straightforward.
Ongoing SMSF obligations
Once established, SMSFs have ongoing requirements such as:
- Annual financial statements and tax returns
- Independent audits
- ASIC fees for the corporate trustee
- Maintaining investment strategy and compliance documentation
These obligations highlight why SMSFs are best managed with ongoing professional support.
Work with the right experts
SMSFs are powerful but complex structures, which is why expert advice is essential.
This education series brings together specialist support from:
- Candice Joseph from Entourage SMSF lending
- Antoinette Sagaria from Entourage Buyer and Vendor Advocate
- Nick Hagen from Nuestar Property Wealth Strategist
- Sean Gavin from Wheelhouse Advisory SMSF setup, structuring and compliance
Watch the full video above and stay tuned for the next instalment in our SMSF education series.
*The content and information in this video is general information only. It should not be taken as constituting financial advice. Wheelhouse Advisory Pty Ltd is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the content in this video relates to your unique circumstances.
Wheelhouse Advisory Pty Ltd is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this video.