A Bond is a type of loan made by an investor to a borrower, typically a government or corporation. When you buy a bond, the SMSF is lending money to the issuer in exchange for:
- Coupons: Regular interest payments
- Repayment of the original amount (face value or principal) at a set maturity date.
What Bonds Means for Your SMSF
Once a bond is issued, it can be sold and traded in the exchange market or over-the-counter. Depending on the interest rate or coupon rate associated with the bond, the price of the bond can fluctuate. The price of a bond can be affected by several factors such as interest rates, credit rating of the issuer, time to maturity, and inflation expectations.
Trading Bonds
Generally, a loss or profit for a bond is incurred when the bond is redeemed or sold to someone else before it has been repaid. The profit should be included on the tax return as Other income. If a loss is incurred on realization the loss can be claimed as deduction on your tax return as Other deductions. It is not usually treated as a capital gain or loss because bonds are typically held to generate income, making them revenue assets. Under Australian tax law, many bonds are specifically excluded from CGT treatment, so any profit or loss is generally assessable as ordinary income or deductible as an expense.
However, if the disposal or redemption of the bond is capital in nature it cannot be claimed as a tax deduction. If this is the case, the capital loss can only be applied against capital gains. To see a more detailed guidance on Bonds from the ATO’s perspective, please click here.
Types of Bonds Available
Government Bonds
Investment Grade Corporate Bonds
Fixed Rate Notes
Floating Rate Notes (FRNs)
Inflation Linked Bonds
High Yield Bonds
Fixed Income Investment Provider
FIIG Securities (Fixed Income Specialist)
FIIG Securities is one of Australia’s leading fixed income providers, supporting SMSF investors with access to the institutional bond market.
When using FIIG, SMSF investors can benefit from:
- Access to institutional-grade bonds not typically available on retail platforms
- Transparent pricing and execution
- Experience supporting over 3,000 SMSFs
- Credit research and market insights to support investment decisions
- Ongoing support in building income-focused fixed income portfolios
Enquire more reach out directly here.
Please note that an SMSF is allowed to invest in bonds as long as the investment strategy allows for it.
Can I buy Bonds in my SMSF?
Yes, an SMSF can invest in bonds as part of its investment strategy. Bonds can play an important role in diversifying the fund’s investment portfolio.
How can an SMSF invest in Bonds?
An SMSF can invest in bonds in several ways, including:
- Managed Income Portfolio Services – Managed Income Portfolio Services – Professional portfolio managers, such as FIIG Securities, can construct and manage a corporate bond portfolio in line with the SMSF’s investment strategy, while the fund retains direct ownership of the bonds.
- Australian Securities Exchange (ASX) – SMSFs can purchase exchange-traded Australian Government Bonds through a share broker, including fixed-interest Treasury Bonds and inflation-linked Treasury Indexed Bonds. Certain corporate bonds may also be traded on the ASX.
- Exchange Traded Funds (ETFs) and Managed Funds – SMSFs can invest in fixed-income ETFs and managed funds, which generally offer a lower entry point and diversified exposure to different market sectors.
- Direct Bond Investment – Corporate and government bonds can be purchased through the over-the-counter bond market via a licensed fixed-income broker. Minimum investment requirements vary, and directly held bonds may be subject to custody arrangements. Some state and territory bonds may also be purchased directly from the issuer.