SMSF
ETFs in an SMSF: the rules and the paperwork
An SMSF trustee holding ETFs takes on a documentation job as well as an investment one. This is what the rules require and what each fund produces every year.
What an SMSF is, in one paragraph
A self-managed super fund is a superannuation fund run by its own members as trustees, with up to six members, regulated by the ATO rather than APRA. The trustees are responsible for the fund's investments, its records, its annual return and an annual audit by an approved SMSF auditor.
The rules an ETF holding sits inside
A listed ETF is an ordinary listed investment as far as the superannuation rules are concerned, so the standard trustee obligations apply to it:
- The investment has to be permitted by the fund's trust deed and consistent with its documented investment strategy, which trustees are required to review regularly.
- The sole purpose test applies: the fund's investments exist to provide retirement benefits to its members.
- Assets are held in the fund's name and kept separate from the members' personal assets.
- Every asset is valued at market value each year for the fund's accounts and its annual return.
- The investment strategy has to address diversification, liquidity and the fund's ability to pay benefits as they fall due.
How the income is taxed inside the fund
A complying SMSF pays 15% on its assessable income in accumulation phase. Earnings on assets supporting a retirement-phase income stream are generally exempt from tax in the fund.
Capital gains on assets held for more than 12 months get a one-third discount inside a complying fund, which puts the effective rate at 10% in accumulation phase.
Franking credits behave differently here than they do for most individuals. Against a 15% rate — or against no tax at all in retirement phase — credits attached to Australian dividends routinely exceed the fund's tax bill, and the excess is refunded to the fund.
What each ETF generates at year end
Every fund in the portfolio produces its own paperwork, and the audit reads all of it:
- An AMMA statement per fund, arriving from late July through September.
- Distribution records for the year, including any units acquired through a distribution reinvestment plan.
- Cost base records per parcel, adjusted each year by that fund's AMIT cost base excess or shortfall.
- A market value for each holding at 30 June.
- Realised capital gains and losses for any parcels disposed of during the year, by method.
Why look-through matters to a trustee
An investment strategy has to address diversification, and a holdings list of four ETF tickers does not show what the fund is diversified across. Unwrapping them does: the same four tickers become a list of companies, with a figure against each.
That list is a fact about the fund's assets at a date, which is the form the strategy and the audit file both deal in.
The words on the page
- SMSF
- A self-managed super fund — a superannuation fund run by its members as trustees and regulated by the ATO.
- Accumulation phase
- The phase before a retirement income stream starts, taxed at 15% in the fund.
- Retirement phase
- Where assets support a retirement income stream and earnings on them are generally exempt from tax in the fund.
- Approved SMSF auditor
- The independent auditor an SMSF is required to engage each year before it lodges its annual return.
What this can't tell you
- Superannuation rules change with legislation, and the caps, thresholds and rates change between income years.
- Underly organises facts about holdings and statements. It does not prepare a fund's accounts, its annual return or its audit.
- Nothing here takes a particular fund's trust deed, its members' circumstances or its strategy into account.
- A fund's own accountant and auditor work from the source documents, not from a summary of them.
Where to go next
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