FAQ

SMSF Definition

There are a number of self-managed super fund rules that are important to be aware of before undertaking the task of managing your own fund. A self-managed superannuation fund must meet all of the following requirements:

  • It has four or fewer members
  • All members are trustees, or directors of a corporate trustee, and there are no other trustees (except for a single member fund, minors, or member(s) for whom a trustee holds an enduring power of attorney).
  • No member of the fund is an employee of another member of the fund, unless the members concerned are relatives.
  • No trustee or director of a corporate trustee receives any remuneration in respect of duties or services as trustee of the fund.

To remain a complying superannuation fund (and be eligible for tax concessions), a SMSF must meet the requirements of an Australian superannuation fund for the entire year.

Definition of a SMSF member

A SMSF member includes:

  • A person who receives a pension from the fund; or
  • A person who has deferred his or her entitlement to receive a benefit from the fund.
  • Is a member of an SMSF in its ordinary meaning

For instance, a SMSF has four members consisting of a man, his two daughters and his son-in-law. Should the man retire, taking a pension from the fund and his granddaughter joined the fund, it would no longer meet the definition of an SMSF (since there are more than four members).

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Sole Purpose Test

One of the major self managed superannuation rules that must be complied with is the SMSF must be maintained for the sole purpose of providing members with retirement benefits, or providing members' beneficiaries with benefits if the member dies before retirement. Other ancillary purposes are permitted, including payment of disability benefits for a member's retirement due to ill health or in other circumstances approved by the Australian Prudential Regulation Authority.

SMSFs can't use superannuation savings to provide pre-retirement benefits to members or associates. Maintaining the fund for retirement objective is paramount.

Essentially the core purpose is the payment of benefits on, or after, the member's retirement or earlier death. Similarly, additional purposes may include: payments made upon termination of employment e.g. following permanent incapacity, salary continuance (on a member ceasing work because of temporary ill health), reversionary benefits, and other approved benefits on, or after, an appropriate condition being met.

SMSF trustees must ensure the sole purpose test is complied with at all times. A person who breaches the test is guilty of an offence and significant penalties may apply. Failure to comply with the sole purpose test may also result in the fund becoming a non-complying superannuation fund for taxation and superannuation guarantee purposes.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Investment Restrictions

An SMSF has investment restrictions. The superannuation law doesn't state exactly what a fund can and can't invest in. However, it does restrict some investment practices.

The investment restrictions aim to protect fund members by making sure fund assets are not overly exposed to undue risk (e.g. the possible risk of an associated business failing). Furthermore, SMSFs must make investment decisions with the primary purpose of generating retirement benefits for members. SMSFs are not to provide direct or indirect financial assistance to members, employer-sponsors or their associates.

Failure to comply with SMSF investment rules could result in trustees being fined, imprisoned and/or the fund losing its compliance status resulting in significant tax penalties.



SMSF trustees are also prohibited from lending money, or providing financial assistance from the fund, to a member or a member's relative. The use of a fund asset by a member or a member's relative for no cost (or as a guarantee to secure a personal loan) would be in breach of this investment restriction.

Investments to be made and maintained on an 'arms-length' basis

Investments by SMSFs must be made and maintained on a strict commercial basis. The purchase and sale price of fund assets should always reflect a true market value. Income from assets held by the fund should always reflect a true market rate of return.

The fund cannot purchase residential property from a related party or lease a residential property to a related party even if the transaction is held at arm’s length.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Managing Investments - Investment Strategy

The trustees of every superannuation fund are required to document and implement an investment strategy for the superannuation fund. The strategy must reflect the purpose and circumstances of the fund and have regard to:

  • Investing to maximise member returns having regard to the risk associated with making, holding and disposing of the investment.
  • Appropriate diversification and the benefits of investing across a number of asset classes (for example, shares, property, fixed deposit) in a long term investment strategy.
  • The ability of the fund to pay benefits as members reach retirement and other costs incurred by the superannuation fund.

SMSF trustees can be penalised if they fail to put an investment strategy in place. 

An appropriate investment strategy will set out the investment objectives of the fund and detail the investment methods the fund will adopt to achieve these objectives. Trustees must make sure all investment decisions are made in accordance with the documented investment strategy of the fund.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Tax implications of investing in superannuation

A contributions tax of up to 15% applies to any employer or personal superannuation contributions where a tax deduction is claimed. These types of contributions are referred to as concessional contributions and include all contributions made on your behalf by your employer (for example, superannuation guarantee and salary sacrifice). However, this 15% tax rate only applies to contributions made within the concessional contributions cap of $25,000 (2012/13)*.

Concessional contributions above this cap will effectively be taxed at 46.5%.

In accumulation phase, superannuation investment earnings are taxed at a maximum rate of 15%. This can be reduced by imputation credits depending on the underlying investments. Capital gains tax is applied at 10.0%.

*If you earn over $300,000 (2012/13) the tax rate within the fund for earnings and contributions is 30%

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Acquisition of Assets From a Related Party

SMSF trustees can't acquire assets from a related party of the fund. Limited exceptions exist and include:

  • The asset is an in-house asset and would not result in the level of in-house assets of the fund exceeding 5% of the fund's assets. Alternatively, when an asset is specifically excluded from being an in-house asset;
  • The asset is a listed security (for example, shares, units or bonds listed on an approved Stock Exchange); and
  • The asset is business real property of a related party and is acquired at market value.

Business real property generally relates to land and buildings used wholly and exclusively in a business. SMSF trustees are permitted to acquire up to 100% of the fund's total assets in business real property, as long as this is consistent with the investment strategy for the fund.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Related Party of a SMSF

A related party of an SMSF broadly covers: all fund members, their associates (including related entities), all employer sponsors of the fund and their associates.


Associates of members commonly include their relatives, business partners and any companies or trusts they control (either alone or with their other associates).


Associates of employers commonly include business partners and any companies or trusts that the employer controls (either alone or with their other associates) or companies and trusts which control the employer.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Trustee Residency

A potential problem may occur when SMSF trustees elect to temporarily work overseas. For a fund to be complying, an assessment needs to be made in relation to who conducts the strategic and high level decision making processes and activities of the fund, as well as where and when this takes place, referred to as central management and control.



Generally, short-term temporary absences from Australia by SMSF trustees are not taken into account when determining a SMSF's residency status. However, if SMSF trustees depart Australia for an extended period, the fund might not meet residency requirements. If an SMSF is faced with losing its residency status, it should consider appointing an approved trustee. Alternatively, before a SMSF trustee departs Australia, other arrangements should be made so the SMSF fund can continue to receive tax concessions.

Further, if a member becomes a non-resident of Australia in a year, trustees should carefully consider whether or not to accept contributions on behalf of the member, in order to protect the fund's eligibility for tax concessions.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Record Keeping Requirements

Under superannuation law, SMSF trustees must:

  • Keep accurate and accessible accounting records that explain the transactions and financial position of the fund for a minimum of 5 years.
  • Prepare an annual operating statement and an annual statement of the fund's financial position and keep these records for a minimum of 5 years.
  • Prepare minutes of trustee meetings (where matters affecting the fund were discussed), record all changes of trustees and members' written consent to be appointed as trustees for a minimum of 10 years.
  • Keep copies of all annual returns lodged for a minimum of 10 years.
  • Keep copies of all reports given to members for a minimum of 10 years. Poor and inadequate record keeping has been identified as a major problem for SMSFs. As this can pose a compliance risk, SMSF trustees need to give this area detailed attention.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

SMSF Borrowing Rules - Frequently Asked Questions

In September 2007, the Australian Government introduced SMSF borrowing legislation to allow superannuation trustees to borrow for investment in certain circumstance. The Blueprint planning team are the professionals in SMSF borrowing that Perth investors rely upon in this new, often complex, area.

Questions Answers
What is the term of the loan? For residential property up to 30 years. For commercial property up to 20 years. This will vary between lenders.
Can I have interest only? Yes – for periods up to 5 or even 10 years, depending on the loan and lender.
Can I fix the rate? Rates can be fixed for varying periods from 1 year up to the full term of the loan – depending on the loan and lender selected.
Can I redraw on the loan? No.
What is the loan size? Loans can be as small as $100,000 and there is really no upper limit – subject to lender approval of the property and SMSF borrowing capacity.
What Loan to Value Ratio (LVR) is available?

Varies between lenders. As a guide:

  • Residential property: up to 72% (up to 80% subject to conditions)
  • Commercial property: up to 70% 
  • Income-producing rural properties: up to 65% 
What costs should I consider? You will need to consider the costs of establishing an SMSF as well as the Trustee company, Bare Trust (Property Trust) and any advice you may need on this. You will have all of the normal costs associated with buying property and taking out a loan and mortgage plus a lender’s legal review fee, which varies between lenders. 
Can I get a pre-approval before I look for a property? Yes. In fact we recommend it. Pre-approvals are indicative only and will be subject to a valuation of the property acceptable to the chosen lender.
What sort of property can I buy? Any residential investment property and any income producing commercial property including rural properties. However there are limitation on who you can buy a property from.
Can I do a construction? You may do a construction, but only if it is structured as a single purchase of a house and land package.  Separate purchase of land and later construction of a house is not allowed.  You may undertake renovations as long as the character of the asset doesn’t change, however, you may not borrow to undertake a renovation.
Can I refinance an existing property? Yes.
What about outgoings and other property costs? Outgoings – management fees, maintenance, rates and other costs associated with property ownership are the responsibility of the SMSF just as they would be your responsibility if the property was in your own name. All rent received belongs to the SMSF.

Note: the table above refers solely to lender restrictions. There are different requirements for related party lending.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Preservation of superannuation and conditions of release

All contributions and fund earnings after 30 June 1999 are preserved. Generally, preserved benefits cannot be paid until retirement (after reaching your preservation age), or turning age 65 (in general meeting a condition of release).

Benefits can be released earlier in special circumstances, such as:

  • severe financial hardship (must be in receipt of Centrelink benefits for 6 months)
  • compassionate grounds
  • temporary and permanent incapacity
  • non-residents permanently departing Australia (taxes apply); or
  • death or terminal illness of the member. 

Benefits may also be released early in the form of a non-commutable income stream once a person reaches their preservation age under transition to retirement rules.

Retirement is defined as:

  • Between 55 and 60, retirement occurs when the super fund trustee is satisfied that you have ceased a gainful employment arrangement and that you do not intend to be gainfully employed for more than 10 hours per week.
  • Between 60 and 65, retirement occurs when you terminate your current employment after turning 60, even if you immediately take up new employment; or
  • Retirement is assumed when a person reaches age 65.

A person’s preservation age differs according to when they were born as follows:

Date of birth Preservation age
Before 1 July 1960 55 years
1 July 1960 - 30 June 1961 56 years
1 July 1961 - 30 June 1962 57 years
1 July 1962 - 30 June 1963 58 years
1 July 1963 - 30 June 1964 59 years
After 30 June 1964 60 years

 

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Superannuation Death Benefit

You might assume that your will controls how all your money will be divided up when you die.

That's not necessarily enough to decide what happens to money in your super fund, even if you've started drawing on your super as part of your retirement, for example through an allocated pension. In fact, special rules control how your super fund trustees are allowed to distribute the money, and how that money will be taxed. Under those rules, various people may be entitled to claim a share of your super benefits.

Knowing how the rules work can help you make things easier for those who will be financially affected by your death.

First of all, the total amount of money will include the money in your super account at that time you die plus an insurance payment if you had life insurance cover as part of your super fund membership. That's called your 'death benefit'.

Your fund can pay your death benefit either to your ‘dependants’ or to your estate. For the fund’s purposes, your dependants include your spouse, your children and ‘other persons’ financially dependent or interdependent on you. In the case of ‘other persons’, fund trustees must have evidence that your relationship involved financial dependency or interdependency.

For tax purposes, your adult children do not automatically qualify for a tax concession on your death benefit. They need to prove to the Australian Taxation Office that your relationship with them involved financial dependency or interdependency before they get a tax concession.

This table summarises the situation for different types of relationships from both a superannuation and tax point of view:

Relationship Key Points
Your spouse
Your married or de facto partner (including a partner of the same sex). No need to prove financial dependence for both superannuation and tax.
Your spouse (now separated but still legally married) Still regarded as a dependant. No need to prove financial dependence for both superannuation and tax.
Your former spouse (now legally divorced) Must prove financial dependence or interdependencey to receive death benefit from the fund trustee, but assumed to be dependent under tax laws.
Your children Includes adopted children, ex-nuptial children and those by previous relationships, of any age from a superannuation point of view. (However, step-children are only automatically considered as dependants of their natural parent. If the natural parent dies first they won't be automatically regarded as dependants of the surviving step-parent.) If under 18 years old, will automatically be considered as dependants under tax laws. Adult children must prove financial dependence or interdependency to qualify for a tax concession.
Inter-dependent relationships (including same-sex couples) Two people may have an ‘interdependent relationship' if they: have a close personal relationship, live together, one or each of them provides the other with financial support, and one or each of them provides the other with domestic support and personal care of a type and quality above the care and support that might be provided be a mere friend or flatmate. Each of these conditions must be proved. An interdependency relationship may also exist where there is a close personal relationship between two people but they do not live together, provide financial support, domestic support or personal care due to one or both of them having a physical, intellectual or psychiatric disability or they are temporarily working overseas or serving a gaol sentence. Friends or flatmates just sharing accommodation, or people providing care under employment contracts or on behalf of a government or charitable or benevolent organisation, would not qualify to be interdependent. This applies for both superannuation and tax point of view.
Anyone the fund trustee considers is financially dependent on you at the time you die Must prove financial dependence.

If you were supporting someone financially or were in an interdependency relationship, who is not automatically regarded as a dependant, at the point of death they may need to tell the super fund trustee about your relationship, possibly by filling out a statutory declaration explaining how they depended on you.

Many people may have several relationships where financial support is involved (for example, a wife or husband, young children, adult children from a previous marriage, or a sick relative who is cared for at home). In these cases, the trustee may face an even more delicate job of deciding how to divide up the death benefit between different people. 

Like it or not, trustees may have to make some inquiries and reach their own conclusions, and they do not have to follow the instructions in your will.

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

How is a death benefit payment taxed?

Taxation treatment of a death benefit depends on:

  1. The age of the deceased
  2. The type of benefit
  3. The dependency status of the beneficiary
  4. The source of the funds – taxable versus tax-free component
  5. The age of the beneficiary

Under SIS law a dependant is:

  1. A spouse (including a de-factor spouse but excepting a former spouse)
  2. A child of any age (including a step-child)
  3. A person with an interdependency relationship with the deceased

Under the tax act a dependant is:

  1. A spouse (including a former spouse and a de-facto spouse)
  2. A child under the age of 18
  3. A person with a interdependency relationship with the deceased

This website contains general information only.  It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.