Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 171

SMSFs need vigilance with money in and out

When an SMSF member deposits money into their fund’s bank account, it is treated as the member’s superannuation contribution. When cash is paid from an SMSF’s bank account to a member, the member has received a superannuation benefit. There are, however, legal grey areas where contributions could be made unintentionally and a benefit might not be considered paid when intended.

In Taxation Ruling 2010/1, the ATO states that a ‘contribution’ is anything of value that increases the capital of a superannuation fund, provided by a person whose purpose is to benefit one or more members of the fund or all of the members in general.

It’s a long-winded way of saying that when a member transfers an asset into their SMSF without receiving payment for the asset, that asset should be treated as a contribution. In the same way, if a member pays their SMSF’s expenses without obtaining reimbursement from the fund, the payment could be treated as a contribution as it extinguishes the liability of their SMSF and increases the fund’s capital.

Members need to also be careful when making renovations to properties owned by their SMSF. If the property increases in value as a result of the renovation, it is treated as a contribution and not only the cost of the building materials paid for by the member.

Timing is important

The timing of a contribution is also important as it determines the financial year in which the member can claim it as a tax deduction, as well as whether the member has exceeded their contributions caps in that financial year (under the current rules).

As TR 2010/1 states, the capital of an SMSF is increased when an amount is received, or ownership of an asset is obtained, or the SMSF otherwise obtains the benefit of an amount.

It’s easy to determine that a cash contribution has been made when the SMSF trustee receives the amount. However, when it comes to an asset transfer, a contribution is sometimes made when the SMSF becomes the beneficial owner of the asset rather than the legal owner. Take, for example, a member transferring land to their fund. The relevant transfer form is signed and given to their SMSF trustee on 30 June. The SMSF trustee lodges the form with the State Revenue Office on 15 July and seeks a transfer of title via the Land Title’s Office once duty is paid.

The trustee, by holding a duly executed transfer form and not requiring anything further from the member to perfect its title, possesses everything required to make the transfer of beneficial ownership of the property on 30 June, so a contribution is considered to be made on 30 June. This is provided the SMSF trustee retains sufficient evidence of the relevant transactions and events to identify when the change of beneficial ownership occurred.

Grey areas in benefits

Just as there are some grey areas in super contributions, there are grey areas when paying benefits. An SMSF can, for example, pay a lump sum benefit by transferring an asset to a fund member, whereas an SMSF cannot pay a pension benefit using assets unless the pension is either partially or fully commuted to a lump sum. Not all pensions can be partially commuted – for example, a transition to retirement pension can only be partially commuted if it has an unrestricted non-preserved component. A lump sum super benefit can be paid in any number of instalments, whereas a lump sum death benefit can only be paid in one or two instalments to the deceased’s beneficiaries.

Benefits not permitted via journal entry

While super contributions can be made with journal entries where the member and the SMSF trustee have a present liability or legal obligation to each other and they offset the liabilities against each other using a journal entry in the SMSF’s books, a super benefit cannot be made with a journal entry.

The ATO states in ATOID 2015/23 that a death benefit, for example, must actually be paid to the deceased’s beneficiaries by transfer of cash and/or the ownership of an SMSF’s asset. The payment must reduce a member’s benefit in the SMSF. A transfer to the deceased’s beneficiaries simply by way of journal entries in the books of the SMSF would not satisfy the requirement of the super law that a benefit has been made.

Understanding the basic requirements of what a super contribution is and when a benefit is made can save a member from contravening the superannuation and tax laws. Just remember, a contribution increases the capital of an SMSF while a benefit should reduce it.


Monica Rule is an SMSF specialist and author of The Self-Managed Super Handbook – This article is general information and does not consider the needs of any individual.


The impact of our marriage breakdown on our SMSF

What is happening with SMSFs? Part 2

What is happening with SMSFs? Part 1


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Latest Updates


The 'Contrast Principle' used by super fund test failures

Rather than compare results against APRA's benchmark, large super funds which failed the YFYS performance test are using another measure such as a CPI+ target, with more favourable results to show their members.


RBA switched rate priority on house prices versus jobs

RBA Governor, Philip Lowe, says that surging house prices are not as important as full employment, but a previous Governor, Glenn Stevens, had other priorities, putting the "elevated level of house prices" first.

Investment strategies

Disruptive innovation and the Tesla valuation debate

Two prominent fund managers with strongly opposing views and techniques. Cathie Wood thinks Tesla is going to US$3,000, Rob Arnott says it's already a bubble at US$750. They debate valuing growth and disruption.


4 key materials for batteries and 9 companies that will benefit

Four key materials are required for battery production as we head towards 30X the number of electric cars. It opens exciting opportunities for Australian companies as the country aims to become a regional hub.


Why valuation multiples fail in an exponential world

Estimating the value of a company based on a multiple of earnings is a common investment analysis technique, but it is often useless. Multiples do a poor job of valuing the best growth businesses, like Microsoft.


Five value chains driving the ‘transition winners’

The ability to adapt to change makes a company more likely to sustain today’s profitability. There are five value chains plus a focus on cashflow and asset growth that the 'transition winners' are adopting.


Halving super drawdowns helps wealthy retirees most

At the start of COVID, the Government allowed early access to super, but in a strange twist, others were permitted to leave money in tax-advantaged super for another year. It helped the wealthy and should not be repeated.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.