The 101s of an SMSF: some basics and benefits explained

Graeme Colley
Executive Manager, SMSF Technical and Private Wealth


In the right hands, a self-managed superannuation fund (SMSF) can be a beneficial way to build wealth for retirement. Whilst they are not for everyone, it is important that when thinking of starting an SMSF, individuals need to understand the benefits and responsibilities they take on by having an SMSF.

What is an SMSF?

An SMSF is a superannuation fund which is established as a trust that is controlled by its members and can offer a number of advantages, such as investment flexibility. However, it should be remembered that an SMSF, as an investment vehicle, brings with it a number of obligations.
Superannuation is really a taxation structure which has its income in accumulation phase and taxed at a concessional rate of 15%, given the SMSF is entitled to a capital gains tax discount of one-third if the relevant assets are held for more than 12 months. Once a fund member commences drawing a pension from the SMSF, there is no tax on all income and taxable capital gains on investments that support the pension.

Setting up an SMSF

The general process of setting up an SMSF involves putting in place a trust deed, appointing trustees, completing ATO forms, setting up a bank account, rolling over member’s benefits from other funds, setting an investment strategy and so on.

How does an SMSF work?

The SMSF can have up to four people, however the government is proposing to increase this to a maximum of six members. Whilst individual and their spouse can be members of an SMSF, as a general rule all members must become an individual trustee or directors of a company, which can act as trustee of the SMSF. The role of the trustee is to have the capacity to ’control’ the fund and make all the investment decisions on behalf of the SMSF.

The real control that trustees have is over their financial future and the building of retirement savings for themselves or, upon their death, for their dependants. The trustees are also responsible for complying with all legal obligations and are entrusted to care for the fund investments. This is not an obligation that should be taken lightly as there are rules and regulations that need to be adhered to.

Risk and responsibility

As mentioned, there are significant risks and responsibilities with managing an SMSF. Some government resources are helpful tools in assessing and understanding what these risks are, such as this guide from

What are the features of SMSFs?

A trustee has responsibility over the management, investment and administration of the SMSF and have the following features:

  • The fund can have up to four members, possibly to be increased to six members;
  • If the trustees of the fund are individuals, each member is an individual trustee;
  • If the trustee of the fund is a company, each member is a director of the company;
  • No member can be an employee of another member, unless they are relatives;
  • No trustee of the fund is paid for any trustee duties or services performed by the trustee in relation to the fund, e