What Is an SMSF? Benefits, Rules & Who Should Start a Self-Managed Super Fund

BY GUEST INDUSTRY EXPERT RICK S.  | SMSF Accountant & Taxation Specialist

(Guest industry expert contributions are educational in nature and do not constitute advice. Contributor participation does not imply endorsement or preferred referral status.)

In Australia, all employers are required to contribute a portion of their employees’ earnings into a superannuation fund — a dedicated retirement savings vehicle designed to support employees in their future retirement.

These contributions are generally paid into large public super funds managed by financial institutions such as banks, retail super providers, or industry funds that hold the appropriate financial services licences to invest on behalf of members.

A Self-Managed Super Fund (SMSF), on the other hand, is exactly what it sounds like — a private super fund you manage yourself. It gives you complete control over how your SMSF investments are allocated and managed.

Unlike retail or industry funds, SMSF trustees make the decisions, choose the assets — including SMSF property and other investment options — and take direct responsibility for the performance and compliance of the fund.

Why SMSF

Using an industry or public super fund can be a great option for many Australians. These funds are managed by professional investment managers and must hold an Australian Financial Services Licence (AFSL), meaning they are heavily regulated by ASIC. This framework helps minimise systemic risks and ensures a level of transparency and consumer protection.

However, public or industry funds don’t suit everyone, especially those who value investment control, flexibility, and transparency.

The following are some of the key limitations of public funds that lead many to establish an SMSF:

1. Limited Investment Choice and Agency Cost

Most public funds offer only a limited range of investment options, typically based on broad risk categories such as Conservative, Balanced, or Growth. You cannot directly select or manage specific assets yourself. This creates what economists call agency cost or agency risk.

In contrast, an SMSF gives you direct control over your investment strategy, allowing you to choose exactly where and how your super money is invested (e.g. direct property, shares, term deposits, private equity, etc.).

2. Misconduct and Regulatory Risk

Although public funds are regulated, management failures and misconduct can still occur.

These cases highlight that regulation reduces but doesn’t eliminate risk. Mismanagement or systemic inefficiencies can still harm your super balance — risks that are largely outside your control.

3. Fee Allocation and Cost Inefficiency

In large public funds, investment costs are pooled and distributed across all members, regardless of which portfolio they hold.

An SMSF, on the other hand, allows you to control and allocate all expenses, ensuring every dollar is linked to your own SMSF investment strategy, not subsidising others.

Regulations of SMSF

While a Self-Managed Super Fund offers greater flexibility and control, it operates under strict SMSF rules administered by the ATO to ensure compliance.

1. Sole Purpose Test

All SMSF investments must satisfy the Sole Purpose Test — meaning all decisions must be made exclusively to provide retirement benefits to members (or their dependants if a member dies).

2. In-House Asset Restrictions

To protect retirement savings, SMSF in-house asset rules limit investments connected to related parties or businesses.

3. Concessional Tax Treatment

Income and capital gains within a complying SMSF are generally taxed at a concessional 15% rate, which is significantly lower than most personal income tax rates.

Who Is Suitable for an SMSF

An SMSF is generally most suitable for individuals who:

1. Want control over investments and decision-making

2. Have the discipline to follow SMSF compliance rules

3. Have a combined super balance of around $200,000+ for cost-efficiency

4. Are business owners or strategic planners seeking tax flexibility

SMSF Means Self-Managed, Not Self-Done

Most successful SMSF trustees don’t do everything alone — they build the right support team.

A qualified SMSF accountant, SMSF financial adviser, solicitor, and (if borrowing) an SMSF lending specialist can help you:

✅ Set up the structure correctly

✅ Maintain SMSF compliance with ATO rules

✅ Improve tax efficiency through correct administration

✅ Avoid breaches and costly penalties

✅ Explore SMSF property investment with confidence

With trusted advisers, managing an SMSF becomes a well-supported journey and you stay in control, but never unsupported.

ABOUT THE AUTHOR:

Rick S. contributes industry perspectives on SMSF accounting and related technical considerations. He leads a Sydney-based accounting and SMSF practice and has over 15 years of experience in public practice, supporting organisations, high-net-worth individuals, and family enterprises. His commentary is provided for educational purposes and does not constitute personal advice or recommendation. Explore your SMSF options >

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(GENERAL INFORMATION ONLY)

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DISCLAIMER:  Guest Industry Expert contributions are educational in nature and do not constitute advice. Contributor participation does not imply endorsement or preferred referral status. The views and opinions expressed in this article are those of the guest expert and do not necessarily reflect the views of the SMSF Intelligence team, its publisher, owners or its representatives and partners. No guarantee is given as to the accuracy, completeness, or timeliness of the content, and we do not accept any liability for loss or damage arising from reliance on the information contained in this article or any linked materials. This article is published for general information and educational purposes only and should not be considered financial, legal, tax, or investment advice. It has been prepared without taking into account your personal objectives, financial situation, or needs. Before making any decisions based on this content, you should consider its appropriateness in light of your circumstances and seek advice from a qualified professional. We do not provide financial, taxation, or legal advice.