Self-managed super funds offer control and flexibility, but require careful structuring. Here are the fundamentals every trustee should understand.
A self-managed super fund (SMSF) gives you direct control over your retirement savings and the flexibility to invest in a broad range of assets, including direct property, individual shares, term deposits and a variety of other investments. For many Australians, that control is the appeal — the ability to decide exactly how your retirement wealth is invested, and to align those investments with your broader wealth and estate planning goals.
With that control comes significant responsibility. All trustees — and all directors of a corporate trustee — must act in accordance with the sole purpose test, the fund's trust deed and the superannuation laws under the Superannuation Industry (Supervision) Act 1993 (SIS Act). The sole purpose test requires that the fund is maintained solely for the purpose of providing retirement or death benefits to members or their dependants. Breaches can result in the fund becoming non-compliant, which carries serious tax consequences and can expose trustees to civil and administrative penalties.
One of the first structuring decisions is how the fund will hold assets and who can be a member. An SMSF can have up to six members, and all individual trustees must also be members (or directors of the corporate trustee if a corporate trustee structure is used). Many advisers recommend a corporate trustee — it simplifies the administration of changes in membership, provides clearer asset ownership and can reduce the fees and paperwork associated with registering and holding assets. The trust deed is the governing document of the fund, and its terms determine what the trustees can and cannot do, so a well-drafted, current deed is the foundation of a well-structured SMSF.
“The investment strategy is another foundational document. Under the SIS Regulations, trustees must formulate, regularly review and give effect to an investment strategy that addresses the risks and objectives of the fund, the composition of investments, liquidity and cash flow, and the fund's ability to meet liabilities. A genuine, documented investment strategy is not just a compliance box to tick — it is evidence that the trustee is acting in the members' interests, and the ATO expects to see it reviewed regularly.
A key structuring decision is how the fund interacts with your broader estate plan, and here there is a critical point that is often misunderstood: superannuation death benefits do not automatically form part of your estate and are not governed by your Will. Your superannuation balance is held by the trustee of the fund, not by you personally, and on death it is the trustee who decides how the death benefit is paid — unless you have put arrangements in place to direct that decision.
A binding death benefit nomination (BDBN) directs who receives your super when you pass away. A valid BDBN binds the trustee to pay your death benefit to the nominated dependants or to your legal personal representative (your executor). Without one, the fund trustee may exercise discretion over the payment, which can produce outcomes very different from what you intended — and can lead to disputes between family members and the trustee. For SMSFs, the BDBN must be consistent with the trust deed and must meet the formal requirements set out in the superannuation legislation; a nomination that fails these requirements may be invalid, leaving the benefit to the trustee's discretion.
A reversionary pension is another estate planning tool available within an SMSF. If you are receiving an account-based pension and you have nominated a reversionary beneficiary — typically your spouse — the pension automatically continues to that beneficiary on your death, rather than being cashed out and paid as a lump sum. This can provide a seamless income stream for a surviving spouse and can also have favourable treatment for transfer balance cap purposes, as a reversionary pension is counted against the receiving spouse's transfer balance cap at the date of death of the original pensioner, rather than the date of commencement.
For business owners, the SMSF can hold business real property — the commercial premises from which your business operates. This can be an attractive strategy: the business pays rent to your own retirement fund, and over time the property is owned outright within a tax-advantaged environment. However, the rules must be carefully observed. The acquisition of business real property from a related party is permitted under the SIS Act, but the in-house asset limits, the arm's-length requirements on the lease, and the restrictions on borrowing to acquire the property all require careful structuring.
The in-house asset rules are a particular trap. Under section 83 of the SIS Act, an SMSF's in-house assets — broadly, loans to or investments in related parties, and leases to related parties — must not exceed 5% of the fund's total assets, measured at market value at 30 June each year. Business real property held on a genuine commercial lease is generally not counted as an in-house asset, which is why the distinction between business real property and other related-party arrangements is so important. If in-house assets exceed 5%, the trustee must prepare a written plan to reduce them before the end of the following financial year; failure to do so can result in the fund being made non-compliant.
Borrowing within an SMSF is possible through a limited recourse borrowing arrangement (LRBA), under which the SMSF trustee borrows money to acquire a single acquirable asset held in a separate bare trust. The lender's recourse is limited to the asset itself, hence the name. LRBAs add cost and complexity — there is a separate trust, a custodian, loan documentation, and strict compliance requirements — but they can allow an SMSF to acquire property that would otherwise be unaffordable within the fund's own cash. The rules around what can be acquired, how improvements can be made, and how the arrangement is documented are tightly prescribed.
We help SMSF trustees align their fund structure with their overall wealth protection and succession plan, working alongside your accountant and Abbott & Mourly Lawyers. That includes reviewing trust deeds, investment strategies, BDBNs and reversionary pension nominations, and ensuring that the SMSF forms a coherent part of your estate plan rather than a disconnected silo. Book a Discovery Call to review your fund's structure and ensure it will deliver what you intend, when the time comes.