What is a Self-Managed Super Fund?
A Self-Managed Super Fund (SMSF) is a private superannuation fund that you manage yourself. Unlike industry or retail super funds where a professional trustee manages your money, an SMSF puts you in the driver's seat.
How Does It Work?
An SMSF has three key components:
- The Fund — A trust structure with its own ABN, TFN, and bank account. The fund holds your superannuation assets.
- The Trustee — Either individual trustees (all members must be trustees) or a corporate trustee (a company set up specifically to act as trustee). We strongly recommend a corporate trustee — it provides better asset protection, easier member changes, and is required for property investment via LRBA.
- The Members — The people whose superannuation is held in the fund (up to 6 members).
What Can an SMSF Invest In?
An SMSF can invest in a wide range of assets, including:
✅ Common Investments
- Listed shares (ASX, international)
- Managed funds & ETFs
- Term deposits & cash
- Residential & commercial property
- Bonds & fixed interest
⚠️ Rules to Know
- Must meet the sole purpose test — investments must be for retirement benefits
- Cannot acquire assets from related parties (with some exceptions)
- Cannot live in or use SMSF property personally
- Must have an investment strategy documented and reviewed
- Annual audit and tax return required
Is an SMSF Right for You?
✅ Advantages
- Full control over investment decisions
- Ability to invest in direct property
- Tax planning flexibility (15% in accumulation, 0% in pension)
- Cost-effective at higher balances
- Estate planning flexibility
- Pool family members' super together
- Access to wholesale investment options
⚠️ Considerations
- You're responsible — compliance obligations are real
- Setup and ongoing costs (accountant, audit, adviser fees)
- Not cost-effective under ~$200k balance
- Time commitment to manage properly
- Penalties for breaches can be severe
- Need to maintain an investment strategy
- Insurance must be arranged separately
LRBA — Buying Property Through Your SMSF
A Limited Recourse Borrowing Arrangement (LRBA) allows your SMSF to borrow money to purchase a single acquirable asset — most commonly an investment property. "Limited recourse" means if anything goes wrong, the lender's claim is limited to the property itself, not the other assets in your fund.
How the Structure Works
Key Entities Explained
🏢 Corporate Trustee
A special-purpose company set up to act as trustee of the SMSF. It doesn't trade — its sole purpose is to manage the fund. Required for LRBA property purchases.
🏠 Custodian Trust (Bare Trust)
Holds legal title to the property while the LRBA loan is outstanding. Once the loan is fully repaid, the property transfers directly into the SMSF. This is a legal requirement — it protects the fund's other assets.
How Money Flows
- Rent from the property flows into the SMSF bank account
- Contributions (employer SG + personal) flow into the SMSF bank account
- Loan repayments are paid from the SMSF bank account to the lender
- Tax is paid to the ATO from the SMSF bank account (15% in accumulation)
- Surplus cash is invested in shares, ETFs, managed funds for diversification
- Dividends from investments flow back into the SMSF bank account
The SMSF Setup & Property Purchase Process
Setting up an SMSF and purchasing property through an LRBA is a multi-step process involving several professionals. Here's exactly what happens, step by step.
Phase 1 — The Advice Process
Before anything is set up, we need to make sure an SMSF is the right move for you.
📋 Initial Strategy Session
Week 1We sit down and assess whether an SMSF is right for your situation. We look at your super balances, borrowing capacity, property goals, insurance needs, and overall financial position.
📊 Game Plan — Run the Numbers
Week 1–2We model the strategy — what does this actually look like in dollars? Contributions, loan repayments, rental yield, tax savings, cash flow projections, and whether the numbers stack up. This is your decision-making tool before committing.
📄 Formal Advice (Statement of Advice)
Week 2–4If the Game Plan stacks up, we prepare formal written advice (SOA) recommending the SMSF establishment, LRBA strategy, investment approach, and insurance recommendations. This is a legal requirement — personal advice must be documented before you act.
Phase 2 — Setting Up the SMSF
Once you've accepted the advice, we move into implementation. This is where the mechanics happen.
🏢 Establish SMSF Entities
Week 4–5Your SMSF accountant/administrator sets up:
- Corporate Trustee company (ASIC registration)
- SMSF Trust Deed
- ABN and TFN for the fund
- Custodian/Bare Trust (for LRBA property)
✅ ATO Registration & Compliance
Week 5–6The fund is registered with the ATO as a regulated superannuation fund via the Australian Business Register (ABR). The ATO must confirm compliance status before we can proceed. This is a gate — nothing else can happen until the ATO gives the green light.
🏦 Open SMSF Bank Account
After ATO ComplianceOnce ATO compliance is confirmed, we open a cash management account (e.g. Macquarie CMA) in the name of the Corporate Trustee as Trustee for the SMSF. This is the central hub — all money flows through this account.
Phase 3 — Funding the SMSF
Now we need to get your money into the new fund. This is often the trickiest and most time-consuming part.
🔄 Rollover Existing Super
3–6 weeks (sometimes longer)We request rollovers from your existing super funds into the SMSF bank account.
- The ATO SuperFund Lookup, ESA (Electronic Superannuation Administration) portals, and the Government Clearing House all need to match exactly — fund name, ABN, bank details
- If anything doesn't match, the rollover is rejected — and this happens often on the first attempt
- Each rejection and resubmission adds 1–2 weeks
- Different funds have different processing speeds — some are days, others are weeks
📊 Investment Strategy & Insurance
During rollover periodWhile waiting for funds to arrive, we finalise and document the fund's investment strategy and arrange any insurance within the SMSF (life, TPD, income protection). This is a trustee obligation.
Phase 4 — Property Purchase
Only when the funds have been received into the Macquarie CMA can we move to purchase.
💰 Arrange SMSF Lending
4–8 weeks (can run parallel with rollovers)Apply for an SMSF-specific loan through a specialist lender (via Money Quest or direct). SMSF loans typically require:
- 20–30% deposit (from SMSF funds)
- Property valuation
- Fund financials and trust deeds
- Higher interest rates than standard mortgages
🏠 Property Contract & Settlement
Once funds received + lending approvedWith funds in the SMSF and lending approved, you can sign a contract of sale. The contract must be in the name of the Custodian Trustee, not your personal name. Settlement typically takes 4–6 weeks. Property settles into the Custodian Trust. Rental income begins flowing into the SMSF bank account.
📈 Ongoing Management
OngoingSurplus cash is invested (shares, ETFs, etc). Loan repayments made from SMSF. Annual audit, tax return, and strategy review. Merit monitors and advises throughout.
Realistic Timeframes
Clients often underestimate how long the SMSF and LRBA process takes. Here's a realistic view based on our experience.
From first meeting to property settlement
Depends on existing fund processing times
What Takes the Longest?
| Strategy & SOA | 2–3 weeks |
|
| Entity Setup | 1–2 weeks |
|
| Rollover Super | 3–6 weeks ⚠️ |
|
| SMSF Lending | 4–8 weeks ⚠️ |
|
| Property Search | Varies |
|
| Settlement | 4–6 weeks |
|
- Super fund rollovers have mandatory processing times — we can't speed them up
- SMSF lenders require the fund to be fully established and funded before approving a loan
- Signing a contract before the SMSF is ready can result in ATO compliance issues and the purchase may need to be unwound
- Cutting corners on compliance can trigger penalties up to $4,200 per trustee per breach
The Merit Ecosystem — Who Does What
| Team Member | Role |
|---|---|
| Merit Financial Services | Strategy, advice (SOA), investment strategy, ongoing management & review |
| Your Accountant | SMSF entity setup, trust deeds, annual audit, tax returns, compliance |
| Money Quest / Lender | SMSF loan application, approval, and settlement |
| Morgans | Investment execution — shares, ETFs, managed funds for surplus cash |
| Merit Insurance | Personal insurance within SMSF (life, TPD, income protection) |