Many people first look at an SMSF because they want to buy an investment property. Once they start reading, they realise the fund can also hold shares, ETFs, and managed funds. Understanding how those assets work inside the super environment, and how the tax treatment changes depending on the fund's phase, is useful background before any strategy decisions are made.
What the rules say
Per the ATO (ato.gov.au), investments you make for your SMSF must be in accordance with your fund's trust deed and superannuation laws, and super laws require you to prepare an investment strategy for your SMSF, which is your plan for making, holding, and realising assets.
SMSFs can invest in shares, ETFs, managed funds, direct property, bonds, gold, crypto, and collectibles, all subject to the SIS Act's rules. For listed shares and managed funds, the compliance bar is relatively straightforward. An SMSF can invest in listed Australian or international shares, ETFs, and managed funds. These are commonly chosen for their diversification and liquidity. As long as trades are made at market value and reflect the fund's investment strategy, they are generally compliant.
The overriding rule is the sole purpose test. The sole purpose test (SIS Act s62) overrides everything: no investment that provides a current personal benefit to trustees is permitted. This means you cannot buy shares and route dividends to a personal account, hold an ETF that somehow benefits a related party, or structure any transaction to produce a present-day advantage outside the fund.
Every transaction an SMSF enters into must be conducted on arm's length terms, meaning at genuine market prices and commercial rates, just as two unrelated parties would deal with each other. Non-arm's length income is taxed at a penalty rate, so the arm's length rule is not a technicality to skim past.
Trustees must also document their approach. The ATO expects genuine asset allocation ranges (for example, 40-50% equities) and not overly broad ranges like 0-100% that fail to demonstrate genuine planning.
How the tax works
The tax treatment of income from shares, ETFs, and managed funds inside an SMSF depends on which phase the fund is in.
Accumulation phase
The accumulation phase is when your SMSF is actively receiving contributions and growing its asset base. During this phase, the fund's net income, which includes investment income like dividends, interest, and rent, is generally taxed at a flat 15% rate.
Capital gains get a discount if assets are held long enough. If an SMSF is wholly in accumulation phase, it will pay CGT on the fund's annual realised net capital gain. The net gain is treated as income for tax purposes, so it will be taxed at the same rate (15%) as other income in the fund. If an asset is held for more than 12 months, any realised capital gain is eligible for a discount of one-third, resulting in an effective tax rate of 10%. This one-third discount is confirmed by the ATO (ato.gov.au).
Pension (retirement) phase
SMSFs can receive a tax exemption on investment income received from assets that support a retirement phase income stream. This income is exempt current pension income (ECPI). In plain terms, once a member moves to a fully retirement-phase pension, the earnings and capital gains attributed to their pension assets are taxed at 0%.
There is a ceiling on how much can sit in the tax-free pension environment. Per the ATO (ato.gov.au), the general transfer balance cap is $2 million from 1 July 2025. Assets above that cap must remain in accumulation phase and are taxed at 15%.
Concessional contributions
The general concessional contributions cap for 2025-26 is $30,000. This cap applies per member across all super funds combined, not per fund. Concessional contributions are generally taxed at 15% inside the fund.
The trade-offs worth weighing
Shares, ETFs, and managed funds bring liquidity that property does not. A parcel of ASX-listed shares can be sold in a day; a residential property cannot. For a fund that also holds an illiquid asset like direct property, having some liquid holdings matters when the fund needs to meet minimum pension payments, pay an unexpected expense, or rebalance after a member retires.
Diversification is the other consideration. A fund holding only one property is heavily concentrated in a single asset, a single location, and a single tenant. Adding listed assets can spread that concentration. That said, diversification does not eliminate risk, and past performance of any asset class is not a guide to future outcomes.
The costs of actively trading shares inside an SMSF, including brokerage, compliance administration, and the time trustees spend on record-keeping, can erode returns if trading is frequent. ETFs offer inherent diversification and liquidity across Australian equities, international shares, bonds, and alternative assets. Many SMSF trustees use broad-based index ETFs as a low-cost core holding rather than trying to select individual stocks.
One structural point: because there is no tax payable on SMSF earnings including dividends when all member benefits are in the retirement phase pension account, your SMSF is entitled to receive any franking credits on Australian share dividends in cash from the ATO. Franking credits represent tax paid by Australian companies on dividends your SMSF is receiving. In pension phase, those credits become refundable, which can be a meaningful benefit for funds holding Australian shares.
A simple illustrative scenario
Consider a two-member SMSF in accumulation phase with a combined balance of $600,000. The fund holds:
- A residential investment property valued at $450,000 (purchased via an LRBA)
- A diversified Australian and international share ETF portfolio valued at $100,000
- Cash of $50,000 held to service the LRBA and meet liquidity requirements
In a given year, suppose the ETF portfolio pays $4,000 in distributions. In accumulation phase, the fund pays 15% tax on that income, so $600 in tax. If the ETF position is sold after 12 months for a $10,000 gain, the one-third CGT discount applies, reducing the taxable gain to approximately $6,667, with tax of approximately $1,000.
When both members eventually move to full retirement-phase pensions (subject to the transfer balance cap), income and capital gains from pension-supporting assets become 0% tax. The same $4,000 in distributions would generate no tax. This is an illustrative scenario only. It is not a projection of what any fund will earn or save.
What to think about next
If you are considering how listed assets might sit alongside a property in an SMSF structure, there are a few concrete steps worth taking:
- Review your fund's investment strategy. The ATO requires the strategy to genuinely address diversification, risk, liquidity, and the fund's ability to meet liabilities. A strategy that simply states you will invest in anything is not compliant. An SMSF specialist accountant can review or draft this document.
- Understand your phase and contribution headroom. The tax outcome from holding shares or ETFs in an SMSF depends heavily on whether the fund is in accumulation or pension phase, and your personal contribution caps affect how much you can grow the fund's balance. These are things to work through with a licensed financial adviser and an SMSF specialist accountant.
- Talk to a broker about how SMSF lending interacts with liquidity. If your fund borrows to hold property via an LRBA, the fund needs sufficient liquid assets to service the loan and meet other obligations. A broker familiar with SMSF lending can help you understand what lenders typically expect. You can book a call with us to discuss how property and finance coordination works in practice, or visit our services page for an overview of what we do.
General information only, not personal financial advice. Speak with a licensed adviser before acting.