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Income in an SMSF

Once an SMSF has been established and is registered with the Tax Office, the Fund can invest into any asset class which is allowable under the SIS Act and agrees with the Funds Trust Deed and Investment Strategy. From those investments, the SMSF is eligible to receive income.

Typical sources of income in an SMSF include the following:

The Fund can also receive the following as income:

Income Allocation to Members

The accounting software we use to prepare Financial Statements and Tax Returns for SMSFs uses the default daily weighted average balance method to allocate the income received in the Fund to each Member.

Default Daily Weighted Average Balance Method

The default daily weighted average balance method allocates the profit (or loss) and income tax applicable in the SMSF to each Member account based on the total of the weighted Member balances at the end of the financial year. This ensures that the Member with the higher balance receives the bigger slice of the earnings received in the SMSF. For more information on the daily weighted average balance method, see here.

Leglisation

The SIS Act offers some guidance on how income should be allocated to SMSF Members but does not enforce Funds to use any allocation method in particular. As long as a fair and reasonable approach isused when allocating income to Members, this meets the requirements outlined in the SIS Act. This gives Trustees some discretion in deciding how the SMSF income should be allocated to the Members. To see the legislation, click the link below:

SIS Regulation 5.03

The income allocation in an SMSF will depend on the income and expenses in the Fund. For information on SMSF expenses, click here.

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