Self-Managed Superannuation Funds (SMSFs) offer individuals greater control and flexibility over their retirement savings. One of the key advantages of SMSFs is the ability to diversify investments, including the option to invest in trusts. However, it’s important to understand the relevant superannuation laws, Trust Deed provisions, and investment strategies governing such investments.

When an SMSF exercises control over a trust, it may be deemed an in-house asset. In-house assets have specific limitations imposed by the superannuation legislation. As per the Superannuation Industry (Supervision) Act (SISA), the total value of in-house assets must not exceed 5% of the SMSF’s total assets. Understanding the control and in-house asset implications is essential for trustees considering investments in trusts.

The most common types of trusts that SMSFs can invest are as below:

Unit trusts are a frequently utilized investment structure for SMSFs. In this structure, the SMSF purchases units in the trust, thereby becoming a unit holder. Unit trusts pool funds from multiple investors and invest in a range of assets, providing SMSF Trustees with a diversified investment option. 

Distributions from trust investments in SMSFs are treated differently based on the type of income or capital distributed. Income distributions are considered assessable income for the SMSF and are subject to applicable tax rates. Capital distributions may be eligible for capital gains tax concessions. If the trust receives franked dividends, the SMSF may be entitled to claim franking credits.

Some examples of the listed trusts on the ASX are Ophir High Conviction Fund (OPH), Aurora Global Income Trust (AIB) and Magellan Global Fund (MGF).

Additionally, Sec 13.22C of the Superannuation Industry (Supervision) Regulations (SISR) allows SMSFs to invest in certain trusts with related parties without those investments being classified as in-house assets. For more information about Sec 13.22C Trusts, please see below:

Managed investments, such as managed funds or managed investment schemes, can also be considered by SMSFs. These investment structures involve pooling funds from multiple investors and are managed by professional investment managers. SMSFs can participate in managed investments that align with their investment objectives and strategy. As with any investment, it is crucial to assess the investment’s suitability, performance history, and fees before making a decision.

Some examples of managed investments are Ishares Core S&P (IOZ), Vanguard Australian Shares ETF (VAS), Betashares Global Sustainability Leaders ETG (ETHI).

The page below gives more information about Managed Investments:

Investing in trusts can offer SMSF trustees additional diversification opportunities, potentially enhancing long-term investment returns. However, it is crucial to understand the relevant superannuation laws, Trust Deed provisions, and investment strategies governing such investments. Professional guidance can help trustees navigate the complexities and ensure compliance with the superannuation and tax laws.

From 1 July 2024, a new Trust income schedule needs to be completed as part of the annual tax returns when a Fund receives Trust distributions. Distributions received can be from Managed Funds, listed or unlisted Trusts, ETFs, wraps or platforms. This extra schedule includes all the tax components of Trust distributions received. Even if the Fund is fully in pension mode and the distributions are exempt from income tax, this schedule needs to be completed.

The Fund must complete a separate schedule for each Trust distribution received. If the Fund received multiple distributions, all distributions must be included in the Trust schedule that is a part of the annual return. 

Additionally, for Funds investing through a wrap or platform, we can use a single annual summary to report Trust distributions and tax statement information for the entire wrap account. This simplifies the annual reporting process. 

The Trust income schedule is a part of the annual tax return. Please see the annual tax return with the last page being the Trust income schedule also included in the instructions here.