6
O kay, so you already have a Self-Managed Super
Fund (SMSF), or you’ve decided to set one up.
It could be because:
»» Of the flexibility an SMSF offers when it comes
to managing your family’s retirement,
»» You believe establishing an SMSF will be more
cost-effective, or
»» It could simply come down to the fact that
you want a larger (absolute) say over how your
money is invested.
Whatever the reasons, you’re not alone.
TAX-EFFECTIVE According to the Australian Taxation Office (ATO),
SMSF
up to the end of September 2016, there were
581,736 SMSFs in existence, a 23% increase since
June 2012.
STRATEGIES YOU
Given the increasing number of individuals
PROBABLY DON’T KNOW
managing their own superannuation, we believe
(BUT SHOULD!) it’s more important than ever to understand how
to obtain the maximum benefit from the SMSF
structure, and particularly, what you need to do to
ensure you’re operating your superannuation in the
most tax-effective way possible. (Please note, the
content herein is intended to be educational, and is
not individual tax advice.)
Before we delve into these strategies, you need
to be cognisant of the tax differences between
your SMSF and you.
You’re wearing two hats
When operating an SMSF, you are effectively two
‘people’ or entities: you’re a trustee on one hand,
and you’re a member beneficiary on the other. That
is, the roles are separate and distinct.
Fool.au 6 tax-effective SMSF strategies 1
If you wish to be a trustee of an SMSF, you’re
making the investment decisions for the fund on
behalf of the member/s, and you’re responsible
for ensuring you’re operating the fund within the
confines of superannuation and tax laws.
So when it comes to discussing tax strategies,
we’ll emphasise when necessary whether we’re
talking about tax within the SMSF, or tax as it
applies to the member.
A couple of caveats before we proceed
The discussion below is in the context of recent
changes to superannuation where you and your
spouse are limited to a total superannuation
balance of $1.6 million and a transfer balance cap
also of $1.6 million.
The ability of members to contribute to super
will be limited to those members who haven’t yet
exceeded their contributions caps and have a total
superannuation balance of less than $1.6m.
Members who decide to start a pension will also
be limited to $1.6 million, and for any members
with amounts greater than $1.6 million today there
will be a need to reduce the value of their pension
to below the cap (however this doesn’t mean
money needs to be removed from super, it just
means excess money may be moved back into the
accumulation phase).
With that out of the way, here are what we think
are the most essential strategies you can follow to
maximise tax-effective income from your SMSF.
Bottom Line: Super remains a wonderful conces-
sionally-taxed savings vehicle to help fund your
retirement. Even if you have a first-class problem
of having more than $1.6 million in Super, you’re
still sitting pretty… but the rest of this report is
focussed on Super funds that are in the (very)
tax-advantaged pension phase.
1 Maximising the tax-free component of your
balance for estate planning purposes
What many trustees may not realise is that
member superannuation balances, even if they’ve
been converted to an account-based pension after
retirement, have two tax components:
»» Tax-free, and
»» Taxable
If a member meets a condition of release (such as
retirement), but is also eligible to make contributions
to superannuation, the so-called re-contribution
strategy could be a useful tool to minimise tax on
death benefit payments made to non-dependents
(adult kids who have left home, for example).
This strategy helps reduce the taxable component
and increase the tax-free component of a member’s
balance, but the benefits of this strategy are being
seriously reduced due to the impending changes to
the contributions caps on 1 July 2017.
The current rules surrounding after-tax (non-con-
cessional) contributions up to 30 June 2017 allow
individual members to contribute $180,000 per
financial year or $540,000 in a ‘bring-forward’
arrangement over three years for members under
the age of 65.
From 1 July 2017, however, these contributions
caps are being reduced to $100,000 per financial
year (or $300,000 over three financial years).
2 6 tax-effective SMSF strategies 
The tax-free component will consist of any
after-tax payments (and government co-contribu-
tions received if applicable) made throughout your
working life.
The taxable component on the other hand will
consist of employer contributions, contributions
where a deduction has been claimed, and/or
investment earnings.
This is significant from an estate-planning point-
of-view as any taxable components in a death
benefit paid to a non-dependent will be effectively
taxed at the beneficiary’s marginal rate or 17%
(whichever is lower).
Here’s an example:
A retired member, aged 61, with a $1m balance
has a tax-free component of $400,000 (40%) and a
taxable component of $600,000 (60%).
If the member withdraws $540,000, the tax
components of the $460,000 left in the member’s
account will remain in the same 40/60 ratio as
above, that being $184,000 as tax-free (40%) and
$276,000 taxable (60%).
When the member recontributes this money
back to super as a tax-free (non-concessional)
contribution, the member’s balance will again be
$1m (assuming no growth in earnings to keep
the example simple) and the tax components will
appear as follows:
»» Tax-free - $724,000 ($184,000 + $540,000), and
»» Taxable - $276,000
The taxable component, as a proportion of the
whole, has been reduced from 60% of the member’s
balance to 27.6%.
Fool.au
 In short, re-contributing money to superan-
nuation on an after-tax basis will mean a more
tax-efficient payout to your non-dependents at the
time of death but to maximise the benefits of this
strategy you should think about doing before 1 July
2017 if you’re in a financial position to do so.
It’s never fun to think about these matters, but
it’s vital if you wish to ensure the most tax-effec-
tive outcome for you and your family after your
passing.
2 Salary sacrifice up to your cap
Mitigating the above strategy somewhat are the
immediate tax benefits of salary sacrificing money
into your SMSF.
Salary sacrifice is an arrangement between an
employer and an employee where the employee
has agreed to forgo part of their future entitle-
ment to salary or wages in return for the employer
adding the same amount sacrificed being contrib-
uted to superannuation.
Yes, salary sacrifice amounts are included as assess-
able (concessional) income of your SMSF, and hence
will add to the taxable component of your member
benefit, but the immediate benefits are obvious:
»» You, the trustee, have more money working
for the members in a concessionally-taxed
environment (capped at 15%), and
»» If you’re an employee earning more than
$18,200 per annum, you’ll save on tax. Instead
of paying a marginal rate of tax 19%, 32.5%,
37% or 45% (plus 2% Medicare levy), your
fund will pay no more than 15%
Fool.au 6 tax-effective SMSF strategies 3
From 1 July 2017, the concessional contributions
cap will be $25,000 for everyone (regardless of age)
so whilst you’ll be adding to your taxable compo-
nent, it won’t be to same degree if you’re also able
to contribute greater post-tax non-concessional
contributions in the same financial year.
3 Claim a deduction from 1 July 2017 (up
to your cap)
Who would have ever thought the miserable 10%
rule would have ever been abolished?
Well, it has.
Currently, at least until 30 June 2017, only
individuals who are substantially self-employed,
or not working at all can claim a deduction against
their assessable income for contributions made to
superannuation.
Employees are only able to claim a deduction
where they’ve earnt less than 10% of the total of
their assessable income (assessable income also
includes any reportable fringe benefits and report-
able employer superannuation contributions).
For example, if you earn $100,000 per year from
running your own business but also worked in
part-time employment with an employer during
the year earning $8,000, you’d be eligible to claim
a deduction (as long as you follow the eligibility
criteria as explained here).
From 1 July 2017 though, this 10% rule is abol-
ished and anyone who properly notifies the trustee
of their fund will be able to claim a deduction to
reduce their personal assessable income and hence
save on tax as an individual.

4 Spouse contributions
From 1 July 2017, the income threshold for a
non-working or low-income-earning spouse will
increase from $13,800 to $40,000.
The offset will gradually reduce after incomes go
above $37,000 and are completely phased out at
$40,000, but the changes for spouse contributions
mean more people will be eligible.
The tax offset amount is 18% ($540) capped at
contributions of up to $3,000 but your spouse will
only be eligible if he or she hasn’t yet exceeded
their non-concessional contributions cap and has
a total superannuation balance of less than $1.6
million in the 2017-18 financial year.
Although a small benefit, it’s in addition to any
pre-tax and post-tax contributions already paid
to superannuation and can be a handy way of
increasing the proportion of tax-free money within
your member’s account, not to mention the handy
$540 tax offset enjoyed by the contributing spouse.
5 Tax-effective income for the SMSF
Franking credits, also known as imputation
credits, are a tax credit that is passed on to share-
holders after an Australian company has already
paid tax at the company level.
If your SMSF owns the shares, the dividends and
eventual franking credits (30%) will flow through
to offset the assessable income of the SMSF (in
the accumulation phase where earnings are taxed
at 15%) after lodgement of its annual return. This
results in a slightly higher benefit for the member
(the beneficiary of the fund).
4 6 tax-effective SMSF strategies 
Even better is the situation where your fund is in
pension phase and owns shares in fully-franked
dividend paying companies.
Not only is the SMSF’s income tax-free in pension
phase, all the franking credits the SMSF is entitled
to are refunded by the ATO after the SMSF’s lodge-
ment of its tax return.
6 Tax-effective income for you, the member
a. Ages 56-59
If you, as a member, are aged between 56 but not
older than 60, any income stream you receive in
the form of an account-based pension means you
may be entitled to a tax offset equal to 15% of the
taxable component of your member account.
As mentioned above when discussing death
benefits, no tax is payable on the tax-free component
of the member’s balance.
When drawing an account-based pension, the
member will need to include the taxable component
of the income payment in his or her income tax
return and is taxed at the member’s marginal rate.
However, the 15% tax offset will reduce, and in
some cases eliminate, any tax paid by the member
(depending on what other sources of income the
member has received in the relevant financial year).
b. Ages 60 and over
Income received by a member who is 60 or older
will receive their income from the fund tax-free.
Not only that, because the income received is not
considered assessable income, it doesn’t have to be
included on the member’s individual tax return.
Fool.au
 Foolish takeaway accountant, tax agent or financial advisor (or all
three) and make an appointment as soon as possible.
Here at The Motley Fool, we’re naturally big
fans of investing in companies that pay partly- or Then take this report along with you, and see
fully-franked dividends. what they can do to make your retirement struc-
tures as tax-effective as possible, while we work on
Conducting such an investment strategy within delivering you an Everlasting Income.
the confines of an SMSF can therefore be a pow-
erful combination for your eventual retirement
(and beyond).
What you’ll need to do though is be aware of the
important tax changes that are happening from 1
July this year, and take advice from your tax agent
or advisor before acting on any of the strategies
mentioned in this report.
We’d like to emphasise too that running an SMSF
puts you on the pedestal of ‘trustee’, with all of the
trustee obligations this entails to keep the ATO
happy that you’re following the rules to the letter.
With an engaged approach to running your
fund, reading widely on the changes happening
to super, and working closely with your advisor or
tax agent (who have considered the needs of your
SMSF and yourself ), we strongly believe that any
or all of the strategies above would add meaning-
fully in the years ahead to tax-efficient income for
both you and your SMSF.
But remember, some of these doors close on
June 30, this year. So re-read this report, call your

Disclosures: Any and all advice contained in the above content is general advice that has not taken into account your personal circumstances and objectives.
Before acting on our advice, please consider the appropriateness of that advice in light of your individual and personal circumstances, and if necessary consult
with your accountant or tax professional. You should review the product disclosure statement (PDS), prospective or other disclosure documents for any financial
product discussed in this report before acquiring that product. Please refer to our Financial Services Guide posted on our web site for more information.
All figures are accurate as of March 16, 2017.
© 2017 The Motley Fool Australia Pty Ltd. All rights reserved.

Fool.au 6 tax-effective SMSF strategies 5