Self-Managed Super Funds (SMSFs) offer the flexibility to take control of your retirement savings, but with this freedom comes great responsibility—especially when it comes to taxation. The Australian Taxation Office (ATO) has strict compliance rules, and trustees who don’t optimise their SMSF tax strategy may end up paying more than necessary.
At Taxgain, we offer the best SMSF administration services, and to help you make the most of your SMSF tax return, we’ve compiled a set of smart, actionable tips designed to keep your fund compliant while minimising tax liabilities. Let’s dive in!
1. Understand the SMSF Tax Landscape
SMSFs are taxed at a concessional rate of 15% on income, provided they comply with the Superannuation Industry (Supervision) Act 1993 (SIS Act). However, different components of an SMSF’s income can be taxed at varying rates:
- Investment income (dividends, interest, rental income) – 15%
- Capital gains on assets held for less than 12 months – 15%
- Capital gains on assets held for more than 12 months – 10% (after a one-third discount)
- Non-arm’s length income (NALI) – up to 45%
Ensuring compliance with these tax rules and ensuring the fund doesn’t do any non- arm’s length dealing is the first step in keeping your tax burden low and your SMSF tax return high.
2. Maximise Your Deductions
Just like with personal tax returns, deductions can significantly reduce your SMSF’s taxable income. Here are some commonly overlooked deductions:
- Investment-related expenses: Fees for financial advice, investment management, and research are deductible.
- Insurance premiums: If your SMSF holds life, total and permanent disability (TPD), or income protection insurance, the premiums may be tax-deductible.
- Accounting and audit fees: SMSFs are required to be audited annually, and the costs associated with these audits are deductible.
- Depreciation of assets: If your SMSF owns rental properties, you may be able to claim depreciation on eligible assets.
3. Take Advantage of Franking Credits
If your SMSF invests in Australian shares, you may be eligible for franking credits—a tax offset that prevents double taxation on company dividends. In some cases, your fund can receive a refund of excess franking credits, boosting the overall SMSF tax return.
Example: If your SMSF receives $7,000 in fully franked dividends, and the company has already paid $3,000 in tax on those dividends, your fund gets a $3,000 franking credit. This means your SMSF can use the $3,000 credit to reduce its tax bill. If your SMSF doesn’t owe any tax, it can receive a $3,000 refund from the ATO.
Pro Tip: Holding shares in pension-phase under SMSF is especially beneficial, as the tax-free status means franking credits can be fully refunded.
4. Keep Contributions within the Caps
While making contributions to your SMSF is crucial for long-term growth, exceeding contribution caps can lead to punitive tax rates of up to 47%. The current caps are:
- Concessional contributions (before tax): $30,000 annually (including employer and salary-sacrificed contributions).
- Non-concessional contributions (after-tax): $120,000 annually, or up to $360,000 using the bring-forward rule (for those under 75).
Exceeding these limits triggers additional penalties and lowers your SMSF tax return, so plan your contributions carefully.
5. Structure Your Investments Wisely
The way you structure your investments within the SMSF can impact your tax efficiency. Consider:
- Holding growth assets for the long term: This allows you to benefit from the one-third CGT discount.
- Investing in tax-effective assets: Australian shares with high franking credits, property with depreciation benefits, and fixed income with concessional tax treatment can all help reduce tax.
- Avoiding non-arm’s length transactions: Any income deemed to be non-arm’s length (NALI) is taxed at a punitive rate of 45%. Always transact at market value.
6. Implement a Transition to Retirement (TTR) Strategy
If you’re over preservation age (currently 60), a Transition to Retirement (TTR) pension can help reduce taxes while keeping your fund growing. With a TTR:
- Your SMSF’s investment earnings become tax-free, potentially improving your SMSF tax return.
- You can draw an income while still working, providing a tax-effective cash flow.
- You may lower your personal tax liability by salary-sacrificing more into super.
However, new rules limit TTR benefits compared to pre-2017 reforms, so seek advice from reliable SMSF accountants before implementing.
7. Consider Professional SMSF Tax Advice
While SMSFs offer flexibility, they also come with complexities. Qualified SMSF accountants at Taxgain—can help you:
- Identify tax-saving opportunities.
- Navigate compliance issues.
- Optimise investment structures for better returns.
- Avoid common SMSF tax return mistakes.
Getting professional advice from SMSF administration experts isn’t just a cost—it’s an investment in maximising your tax return while staying within the law.
Summary
Maximising your SMSF tax return isn’t about bending the rules; it’s about understanding and leveraging the tax advantages available. By structuring your investments wisely, claiming all available deductions, using franking credits effectively, and keeping your fund compliant, you can ensure your SMSF is working at peak efficiency.
At Taxgain, we specialise in SMSF administration, helping trustees in Sydney and Parramatta optimise their super fund’s financial performance.
Need expert SMSF advice? Contact us today and take control of your SMSF tax strategy!