Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 249

Are two SMSFs worth the bother?

Following the introduction of the $1.6 million transfer balance cap, many clients have asked whether it may be desirable to start a second SMSF to quarantine different benefit types and maximise their overall superannuation benefits. The Australian Taxation Office (ATO) has advised that it may not look kindly upon such arrangements. However, the ATO must treat each case on its merits.

Why consider such an arrangement? Most strategies centre on the principle of separating accumulation and pension benefits in order to maintain or grow the tax-free (pension) component in a separate fund. This makes sense if particular assets are expected to grow at a higher rate or generate more income than others. However, the ATO has the discretion to argue that Part IVA of the Income Tax Assessment Act (ITAA) applies in circumstances where a taxpayer has structured their affairs with the sole or primary purpose of avoiding tax, therefore there should be a greater objective at stake.

Administration costs and CGT

The total amount you can transfer to an income stream is capped at $1.6 million, although this amount can grow or decline in value without being assessed against the cap again (unless you make substitutions). Many retirees are keen to quarantine their high-yielding assets in this tax-free pension phase, and leave lower earning assets in the accumulation phase where income is taxed at 15%.

If you have an SMSF, generally earnings on your pension and accumulation accounts are assessed proportionately for tax purposes, which means you can’t allocate your higher-earning assets to the pension account and the lower-earning assets to your accumulation account. If you have two separate funds, different assets (and therefore their earnings) are segregated (for example, property in one fund and equities in another). However, you will have to pay two sets of administration costs, which could exceed the amount saved in tax payable on the different earnings.

If your fund is already fully or partly in pension phase, and you wish to set up another fund, not only would additional establishment and administration fees apply, but the sale or transfer of any assets from the existing fund to the new fund could create a capital gains tax (CGT) event. Capital gains in pension phase are generally tax-free, so this would be mostly relevant for accumulation interests. Stamp duty may be payable depending on the asset and the jurisdiction in which the transfer occurred.

Public offer funds

Many investors have a public offer fund in addition to their SMSF. This may be due to their employment arrangements, longstanding defined benefit schemes, or to retain insurance policies. While many individuals will roll these benefits into their SMSF at retirement, there may be incentives to retain these arrangements with a public offer fund, which will effectively quarantine the assets within this account. Others may consider establishing a new SMSF. While CGT and stamp duty issues are relevant only to the extent that they would apply in the public offer fund, the same considerations regarding purpose apply (i.e. the purpose is not the avoidance or minimisation of tax).

It should be noted that those SMSFs where no member has a balance greater than $1.6 million including in both accumulation and pension accounts can still use the segregated method if they wish, which would allow the allocation of different assets and their earnings to occur. In this scenario, holding all assets in pension phase is the most tax-effective option, although there may be other reasons for individuals to retain accumulation accounts. Additionally, public offer funds such as wrap accounts may not be subject to these accounting requirements and therefore segregation opportunities may be available.

If you wish to pursue a strategy of having two SMSFs, consider your objectives and the purpose for doing so in light of the ATO’s position. Some individuals may wish to have one fund with a spouse and another with children from a previous marriage or for the purpose of holding real property with business associates, others may wish to hold their assets in different funds for other reasons.

Whatever the objective, it is critical to seek advice given the ATO’s concern about the strategy, and the general costs and complexity of adding additional structures to your financial affairs.


Gemma Dale is Director, SMSF & Investor Behaviour at nabtrade, a sponsor of Cuffelinks. Any advice and information contained in this article has been prepared without taking into account your objectives, financial situation or needs.

Tony R
May 01, 2018

One reason I can see for this process is that the tax components are locked in when the pension is established and a tax free pension percentage is set for the life of the pension account. If you add contributions which can either be concessional or non-concessional, this will alter the percentage depending on what type they are. That is why you re-establish the pension to recalculate and reset the tax percentage.

May 01, 2018

Has the superannuation industry raised with the Federal Government the current legislative requirements that make it difficult for superannuants in pension mode to add concessional contributions to their retirement funds?

I understand that when the $1.6 million cap was introduced for pension accounts, members were still allowed to make concessional contributions (up to $25,000p.a.) provided they met an age and work test.

However, when I spoke to my Industry Super Fund they told me that current superannuation legislation does not allow additional concessional contributions to be credited directly to a members pension account. They told me I had to:
1. Open a new Accumulation Account with my Industry Super Fund and deposit my concessional contributions into it, then
2. Open a new Pension Account with the same Super Fund, and finally
3. Transfer the funds from my existing Pension Account and the Accumulation Account into the new Pension Account.

Can anyone explain why the Government makes it so difficult to top up a pension account with concessional contributions? Wouldn't it be simpler if Superannuation Funds could accept concessional contributions directly into an existing pension account and advise the ATO when the contributions are received.

April 22, 2018

Wrong way to think about it. The Treasurer gave those with more than $1.6m in their Super Fund two choices - take the excess out or roll it back to Accumulation. No brainer for most in that position - Accumulation at 15% tax rate. I would suggest therefore, the decision to "split" a fund into "Pension" and "Accumulation" accounts was, in effect, the Treasurers

The next decision is whether to establish the new account within an existing SMSF or establish a new, additional, SMSF - again in my view, a no brainer. Total clarity as to what is in each account, the ability to apply different investment strategies and I suspect very little difference in costs as the accounting will be quite simple.

Yes there is some extra admin however there is no tax trickery in such a strategy

April 19, 2018

Given the overdue light being thrown on ATO behaving with small businesses as if it is a rule unto itself, the threatened use of Part IVA to punish those moving to split their SMSFs is draconian at best, and self-defeating at worst. It will sap public confidence that underwrites our self-assessent system, and eventually victimise the real payer - the citizen.

Whilst abuse and avoidance must be tackled robustly, ATO's current practices of acting as an extra-constitutional authority must be curbed. It routinely and condescendingly says in its publications that it will not penalise taxpayers who rely on ATO input. Rule of law woud require it should be penalised for giving such input.

Unless, at a stretch, the taxpayer can reciprocally use anti-avoidance against ATO ("you, ATO, confected a scheme to extract additional revenues beond Parliamentary intent") the current impasse will continue.


Leave a Comment:



Tips when taking large withdrawals from super

Watch your SMSF’s annual return this year

8 hints for any SMSF in both accumulation and pension modes


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Welcome to Firstlinks Edition 455 with weekend update

The resolve of many investors to focus on the long term with their share portfolios is increasingly tested as the list of negatives lengthens. There is a lack of visionary policies during an election campaign and stimulatory spending is contradicting the aims of tighter monetary policy.

  • 28 April 2022

Latest Updates

In praise of our unique democracy and its sausage

For all the shortcomings of our political campaigns, our election process is the best. We are blessed with honest administrators and procedures that we all trust to hand over power peacefully, with a big snag. 

Investment strategies

Is the investing landscape really different this time?

Many market analysts argue that the pandemic has changed everything but we must judge whether the circumstances are as drastic as billed. A quick review of four major events helps decide if this time is different.


Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.


When will I retire? Economic impact of an ageing population

About 39% of the labour force is aged over 45. Intergenerational reports highlight the challenges of an ageing population and the impacts on consumption patterns, dependencies, public finances and economic growth.

The real story behind the crypto crash

The recent sell-off in the crypto market and its trigger - the collapse of the Terra UST coin - has affected many institutions either holding or trading crypto assets, including crypto fund managers.

Investment strategies

Cash is the nightingale, the bird in the hand

The bird in the hand is worth two in the bush, and it's an apt metaphor for investment choices. In 2021, as investors hunted in the bush for decent returns, demand overwhelmed supply. Cash is the bird in the hand.


Book review of 'Putin’s People' and his motivation for war

Author Catherine Belton argues Putin’s sole ambition is to hold onto power. Her book seeks to understand why Putin invaded Ukraine after he became isolated and out of touch with reality during the pandemic.



© 2022 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.