Why Start a SMSF?

SMSF Guide

Why Start a SMSF?

The popularity of self-managed superannuation (SMSFs) is impressive by any standard. SMSFs make up the biggest segment of the $2.3 trillion superannuation investments. Over the last decade, SMSF assets have trebled in size to $700 billion, which represents nearly 30% of total superannuation assets in Australia. It is expected that SMSFs will continue to grow by 5% each year.

As well, SMSFs are continuing to attract a younger demographic. Of the funds established recently, over 40% of new trustees were under the age of 45, an age segment which is steadily increasing year by year. Not only is this demographic after greater control of their retirement savings – but being more tech savvy than older generations, they are looking for more efficient ways to manage their financial affairs.

However, the recent changes to superannuation have led many to the conclusion that it is no longer worthwhile to start a SMSF. Whilst there are a lot of new rules, things haven’t changed to any great degree for anyone thinking of starting an SMSF. The basic considerations for having an SMSF remain the same as they have for many years. In other words, ‘the more things change, the more things stay the same’.

Why manage your own super?

The main reasons that attract people to have their own superannution fund are:

Greater control and autonomy

SMSF trustees are able to decide the fund’s investment strategy to suit the investment and superannuation needs of the fund’s members.

Plus, SMSFs can quickly change their investments or the asset allocation of the fund, which enables the fund to take advantage of investment opportunities as soon as they arise.

Also, assets held by the SMSF are protected from bankruptcy, as creditors are unable to access a member’s superannuation benefit if they are facing bankruptcy.

Greater investment choice

Whilst investment choice can include the more traditional options, such as shares, managed funds, real estate, cash and term deposits, the amounts to be invested can be decided by the SMSF trustees and members.

As well, there are some investments which are unique to SMSFs, such as business property, artworks and collectibles, and private companies and unit trusts. Of course, there are special rules surrounding such investments with which trustees must comply.

Furthermore, SMSFs allow up to 4 people, usually family members, to pool assets to purchase investments which may be unaffordable if purchased by members individually. This may be a business property or investments in family business entities.

Business premises ownership

Many small business owners have their business premises owned by their SMSF. This can be tax effective since the premises can be leased to the member’s business which may, in turn, receive a tax deduction for the rent paid on the property. As well, the fund is taxed at 15% on the net rent received.

In some cases, the SMSF may wish to enter into a limited recourse borrowing arrangement, where the fund can borrow to purchase a property which is held in trust on behalf of the fund.

Greater transparency

Monitoring and controlling the fund’s transactions is directly done by the trustees. Since the trustees and the members are the same, there is greater visibility of the fund’s investments and their performance at any time.

Also, the costs of setting up and running an SMSF are easier to identify and, therefore, are more transparent. The costs vary depending on the circumstances, but it is highly likely for the costs of running a million dollar fund to be lower than the fees a person may pay with other funds.

Greater tax control

An SMSF has greater control over the tax payable by the fund since it can time the purchase and sale of investments. For example, the fund can delay the sale of an investment in order to take advantage of the 12-month CGT discount or the 45-day share holding period.

SMSF trustees also have some choice regarding which investments will be segregated to support tax-free pensions.

Greater flexibility in estate planning

An SMSF provides the flexibility to plan who receives the member’s death benefits, when they receive it and how they receive it, (ie. as a pension or lump sum).

Benefits from superannuation are not subject to the same restrictions as those that are paid from a person’s estate. For example, there is no requirement to wait until probate has been granted.

But … remember to do the homework

In deciding to set up an SMSF, there are a number of factors to consider in order to ensure that it is appropriate for everyone concerned, such as the extra time, effort and knowledge that is required for trustees and members to make informed decisions. Also, the SMSF may unknowingly take on greater investment or compliance risk if the trustees do not have the appropriate expertise or do not engage a specialist SMSF adviser.


At the end of the day, an SMSF offers a number of distinct advantages, but also entails greater responsibility compared to being a member of a retail or industry fund. It pays to do the homework and, if in doubt, speak to a professional who has experience and expertise in running SMSFs.