Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 305

When is it worth establishing a second SMSF?

With the introduction of the Transfer Balance Cap, some SMSF members were required to move assets from their retirement pension account to their accumulation account to ensure their pension account did not exceed $1.6 million on 1 July 2017.

Other superannuation changes have also meant that if an SMSF member has a total superannuation balance of $1.6 million across all of their superannuation funds, and the member is in receipt of a retirement pension, then their SMSF can only calculate the income tax exemption using the unsegregated method.

Where is best to hold pension assets?

Some SMSF members wonder if it is worth establishing a second SMSF where they hold pension assets in their existing SMSF and accumulation account assets in the second SMSF.

There are some good reasons to have two SMSFs. One SMSF could be used to retain higher-yielding investments in the tax-free pension fund and lower-yielding investments in the tax payable accumulation fund. It may assist the member’s pension balance to grow faster than their accumulation account due to the growth of assets in the pension fund.

On the other hand, if all assets were in the one SMSF, then the investment earnings need to be allocated in proportion to the member’s pension and accumulation account balances. Also, in the event a liability arose from an investment in one SMSF, the assets in the other SMSF would not be exposed or affected.

Assets in the two SMSFs can be segregated for investment reasons where different strategies are developed for members with different risk profiles. This is especially useful if the SMSF members are of different ages and at different stages of their lives. As the number of members in an SMSF is limited to four, having two or more SMSFs will also allow larger families to have their children included in the SMSF environment.

It may also assist in asset protection in the event any family member is exposed to a separation claim due to a relationship breakdown.

Some members may establish a second SMSF so that they can have different death benefit nominations in each SMSF, as well as the control of each SMSF left to different people. This may avoid situations where a death benefit is left for one person but the control of the SMSF is passed to a different person, which may result in the controlling person being tempted to ignore the wishes of the deceased member when allocating the death benefit. Members will need to ensure appropriate death benefit nominations are put in place especially with reversionary pensions.

Doing it for the right reasons

There is nothing stopping someone from establishing a second SMSF and doing so on its own would not be a concern to the Tax Office. This is especially so if there are genuine commercial or family reasons for doing so. However, the ATO would be concerned if the member of the SMSFs started manipulating assets between the two SMSFs or switching each of the SMSFs between accumulation phase and retirement phase.

The downside of having two SMSFs is of course the additional administration costs and the initial process of transferring selected assets from the existing SMSF to a newly-established SMSF. Members need to document transactions with care so that there is no confusion as to which assets belong to which SMSF.

Moving assets between the two SMSFs will result in a capital gains tax event with the appropriate tax treatment.  Stamp duty may also apply. Members need to consider 'related party' rules when transferring assets between SMSFs as only listed securities and business real property can be transferred between related parties.

Anyone that is considering establishing a second SMSF should discuss their situation with a licensed financial planner who specialises in the superannuation law. It is a costly strategy and it doubles your compliance obligations so it’s not something members should enter into lightly.

(Editor footnote: One reason to consider retaining a single large SMSF is that if Labor's franking credits proposal is adopted, an SMSF might have tax payable on the accumulation assets to use the franking credits generated by the whole fund, including the pension assets. If assets are separated into a pension SMSF, franking credits may be lost in future).

 

Monica Rule is an SMSF specialist and author. Her advice is general in nature and you should seek advice that relates to your specific circumstances before making any decisions. www.monicarule.com.au

For anyone working with SMSF clients, Monica will be speaking at a webinar hosted by the Institute of Public Accountants on Building a Nest Egg in a Self-Managed Superannuation Fund, on 16 May 2019.


 

Leave a Comment:

RELATED ARTICLES

How SMSFs are investing their money

Meg on SMSFs: Four ways super pensions are better in SMSFs

Meg on SMSFs: Is it better to wait until July to start your pension?

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.