SMSFs are often sold on three promises: control, tax savings and property. Only one of those is unique to an SMSF, and each comes with a cost the sales pitch tends to skip.
This guide weighs the benefits of an SMSF against the drawbacks for the 2025-26 and 2026-27 years, including the new Division 296 tax from 1 July 2026. The tax and pension rules were checked against ATO SMSF tax pages, and the drawbacks against the ATO comparison page and MoneySmart.
It is for people comparing an SMSF with their current fund. If you decide to go ahead, our SMSF setup guide covers each step, and is an SMSF right for you? has a decision checklist.
Key takeaways
- A complying SMSF pays 15% on assessable income, the same as other complying funds.
- Income from assets supporting retirement phase pensions is exempt, within a transfer balance cap of $2 million (2025-26) and $2.1 million (2026-27).
- From 1 July 2026, Division 296 adds tax for total super balances above $3 million, with a further 10% above $10 million.
- Non-arm’s length income is taxed at 45%.
- SMSFs have no government financial assistance for fraud or theft and no AFCA access against the fund.
SMSF benefits and drawbacks at a glance
| Area | Benefit | Drawback |
|---|---|---|
| Control | Trustees choose the actual assets | Trustees carry legal responsibility |
| Tax | 15% rate, pension income exempt | Same rates as any complying fund; 45% on non-arm’s length income |
| Costs | Mostly fixed, so they shrink as a share of larger balances | Fixed costs weigh heavily on small balances |
| Insurance | Cover chosen to suit members | Premiums may be higher than group cover |
| Protection | Members set their own processes | No government assistance for fraud or theft, no AFCA |
| Time | Hands-on involvement | More than 8 hours a month on average (MoneySmart) |
Source: ATO, How SMSFs are taxed, ATO, Transfer balance cap, ATO, Division 296 for SMSFs, ATO, Compare SMSFs, MoneySmart, checked 9 October 2026.
Is control the real benefit?
Yes, and it is the one benefit only an SMSF gives you. The ATO notes that members of most large funds can choose a risk level but not the specific assets. In an SMSF the trustees develop the investment strategy and make every investment decision, from which listed shares to hold to how much stays in cash.
Control has limits. Every investment must pass the sole purpose test, be at arm’s length and fit the written strategy. Our investment strategy guide explains what that document must cover.
Do SMSFs really save tax?
The rates are not special. According to the ATO, any complying fund pays a concessional 15% on income, and concessional contributions are taxed at 15% in the fund. If you add to super through salary sacrifice, the same 15% applies whether the fund is an SMSF or not.
What an SMSF does give you is timing. Trustees decide when to sell assets and when a member moves into a pension. Once assets support a retirement phase income stream, the income from them is exempt current pension income. The amount you can move into retirement phase is limited by the transfer balance cap.
What changes with Division 296?
From 1 July 2026, the Division 296 tax reduces concessions for people with large balances. For 2026-27 the large balance threshold is $3 million and the very large threshold is $10 million, with an extra 10% on the very large component. SMSF trustees must report in-scope members’ earnings on the annual return, usually with an actuary’s help.
What are the drawbacks?
| Drawback | What the regulator says |
|---|---|
| Legal responsibility | Trustees are equally responsible, even with professional help |
| No safety net | No government financial assistance for fraud or theft |
| Disputes | ATO does not resolve member disputes; no AFCA |
| Insurance | Premiums may be higher than in large funds |
| Time | More than 8 hours a month on average |
| Penalties | Personal administrative penalties for breaches |
Life events matter too. MoneySmart notes that illness, relationship breakdown, death or moving overseas can make an SMSF hard to run and may force a wind-up. Directors of a corporate trustee also need a director ID, and every fund needs an approved auditor each year under the ATO’s audit framework.
Do the costs fall as the balance grows?
Partly. Most SMSF costs are fixed amounts rather than a percentage of the balance, so the same bill is a smaller share of a larger fund. MoneySmart puts it the other way round: the lower the starting balance, the greater the impact of fixed costs on returns.
The ATO lists the costs to plan for. Two apply every year to every fund:
- Independent audit by an approved SMSF auditor.
- Supervisory levy: $259 for a continuing fund, or $518 for a newly registered fund covering two years, per the ATO annual return page.
Others depend on the fund: a tax agent, asset valuations, actuarial certificates, legal fees, an administrator, insurance, financial advice and, with a corporate trustee, ASIC fees. Get written quotes for your fund and compare them with the fees on your current fund statement, not with a rule-of-thumb balance.
Is property a reason to start an SMSF?
An SMSF can own property, but the ATO has warned about people pushed into an SMSF to buy a single investment. The property cannot give members or related parties a present-day benefit, and borrowing must follow the limited recourse rules. Read our guides on buying property with an SMSF and bare trusts for SMSF property before you commit.
Worked example: how the pension exemption works
An SMSF has $60,000 of investment income in a year. One member is in retirement phase and an actuary certifies that 40% of the fund’s liabilities are current pension liabilities, so the fund uses the proportionate method.
Exempt current pension income: $60,000 x 40% = $24,000.
Taxable income: $60,000 – $24,000 = $36,000. Tax at 15%: $36,000 x 15% = $5,400.
If neither member were in retirement phase: $60,000 x 15% = $9,000. The difference is $9,000 – $5,400 = $3,600, less the cost of the actuarial certificate.
The same exemption applies in a large fund’s pension account. The SMSF benefit is control over timing, not a lower rate.
Rule of thumb: if a benefit you are being sold also exists in a large fund’s pension or investment options, it is not a reason to start an SMSF. Control is the reason, and it comes with the responsibility.
Common mistakes when weighing up SMSF benefits
- Assuming lower tax rates: complying SMSFs pay the same 15% as other complying funds.
- Ignoring Division 296: balances above $3 million face extra tax from 1 July 2026.
- Overlooking non-arm’s length income: it is taxed at 45%.
- Comparing fees without insurance: replacing group cover may cost more.
- Forgetting the time: MoneySmart reports more than 8 hours a month on average.
FAQ about the benefits of an SMSF
Do SMSFs pay less tax than other super funds?
No. The tax rules are the same for all complying super funds. A complying SMSF pays 15% on its assessable income, and income from assets supporting retirement phase pensions is exempt. What differs is control: SMSF trustees can decide when to buy and sell, which can affect the timing of tax, but the rates themselves are not lower.
What is the biggest benefit of an SMSF?
For most trustees it is control over the specific assets the fund holds. Large funds usually let you choose a risk option, not individual investments. With an SMSF the trustees decide, within the investment rules, the sole purpose test and the written investment strategy. That control comes with full legal responsibility for every decision.
What is the biggest drawback of an SMSF?
Responsibility and protection. Trustees are legally responsible even when they use professionals, there is no government financial assistance for fraud or theft, and members cannot complain to AFCA about their own fund. Running costs are largely fixed, so they weigh more heavily on smaller balances, and MoneySmart reports trustees spend more than 8 hours a month on average.
Does Division 296 apply to SMSFs?
Yes. From 1 July 2026, individuals with a total super balance above $3 million face extra tax on their share of super earnings, with a further 10% above $10 million for 2026-27. It applies to members of all super funds, including SMSFs, and SMSF trustees must report in-scope members’ earnings on the annual return from 2026-27.
Can an SMSF buy property?
Yes, if the trust deed and investment strategy allow it and the purchase meets the sole purpose test and the investment restrictions. The property cannot give members or related parties a present-day benefit, and the fund generally cannot buy assets from related parties. If the fund borrows, it must use a limited recourse borrowing arrangement, usually with a bare trust.
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Nanak Accountants can model the costs and tax of an SMSF against your current fund and look after the annual accounts and return once it is running. Call 1300 626 258, book a free 15-minute consultation or visit nanakaccountants.com.au. For pension payment rules, see the ATO page on SMSF income streams.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO SMSF tax, exempt current pension income, Division 296, transfer balance cap and comparison pages and ASIC MoneySmart on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
