Super Funds & Complex Structures – The Big Comparison

How an SMSF Is Actually Set Up

Dom explains a super fund is legally a trust, with its own special rules layered on top. Setting one up requires a corporate trustee (a company set up specifically to act as trustee, since an individual trustee creates compliance risk if something happens to that person), whose directors are the fund's members. A super fund trust deed defines the relationship, including rules around contributions tax and pension eligibility, more complex than a standard family trust deed.

Once established, an investor typically rolls their existing public super balance into the new SMSF bank account, and redirects future employer contributions there. Dom notes many people don't even know their approximate super balance, and stresses that despite not having day-to-day access to it, it genuinely is their money, and taking control of where it's invested is the main point of an SMSF, not any special tax advantage, since SMSFs receive exactly the same tax treatment as public super funds.

Why a Separate Borrowing Structure Is Needed

Dom explains that superannuation law fundamentally prohibits super funds from borrowing directly. To enable property purchases anyway, legislation created a workaround: a separate "borrowing trustee" company is set up to hold legal title to the property via a "bare trust" (an entity that exists purely to sit on the property title while a loan is in place, taking on no risk and doing nothing else). The property's rent flows to the super fund, and the super fund covers the loan repayments and expenses, while the borrowing entity is, in Dom's words, effectively invisible. Once the loan is fully repaid, the property is transferred directly into the SMSF's own name and the borrowing entity is wound up.

Why SMSFs Can Sometimes Borrow More

Dom explains that unlike an individual assessed purely on personal income and expenses, an SMSF's borrowing capacity can draw on multiple income streams simultaneously, existing employer super contributions (currently 12% of salary, money the borrower likely doesn't even factor into everyday budgeting), rental income from the property itself, and any additional voluntary personal contributions, which together can support a larger loan than the same person might qualify for personally. That said, both Dom and Jeremy note SMSF lending still has its own caps and stricter servicing rules, so it isn't unlimited, just an additional borrowing avenue once an investor's personal capacity is exhausted.

Practical Considerations: Balances, Costs, and Timeframes

Dom estimates a typical starting SMSF setup cost of around $2,000–$2,500 (which can be reimbursed from the fund itself once established), with a further roughly $1,500 required for the borrowing entity once a purchase is ready to proceed, and notes setup typically takes about a week. While there's no strict legal minimum balance, Dom suggests a fund needs to be large enough to comfortably support the intended purchase (with lenders wanting to see some retained liquidity even after buying), rather than citing a single fixed rule of thumb, since combined balances (for a couple) or a lump sum from an inheritance outside super can materially change what's realistic.

Worked Example A: Standard SMSF Accumulation

Using the same modelling format from earlier episodes, Dom shows a $500,000 property (80% LVR, 5% annual growth, interest-only) held within an SMSF, negatively geared for around the first six years (with the shortfall offset by ongoing employer contributions, meaning a member on a typical salary generally wouldn't need to personally top up the fund at all). Selling at year 10 for $805,000, the $305,000 capital gain benefits from the SMSF's one-third CGT discount (a smaller concession than an individual's 50%, reducing the taxable gain to $203,000), taxed at the standard 15% super rate, a $30,500 tax bill. After all costs, this leaves the fund $359,000 better off than when it started.

Worked Example B: Selling in Pension Phase

Using identical assumptions, but timing the same sale to occur after the member has genuinely entered pension phase (available from age 60, once formal retirement conditions are met), the fund's tax rate on the sale drops to 0%, eliminating the capital gains tax bill entirely. This lifts the net result to $390,000, notably higher than Scenario A purely due to timing. Dom stresses the precise date matters (the sale needs to occur after retirement is triggered, not before) and recommends working with a financial planner to get this timing right, since the rules around partial-year eligibility add complexity.

Worked Example C: SMSF Plus Personal Contributions

In this scenario, the investor also makes $20,000 a year in personal, tax-deductible super contributions on top of employer contributions, funding the SMSF further and quickly pushing the fund's own cash position from negative to positive gearing. While this means more of the investor's own money goes into the fund, it also generates a substantial personal tax deduction (at their 39% marginal rate), an after-tax cost of only around $12,200 per $20,000 contributed. Combined with the SMSF's own $374,000 result at sale, the taxpayer's separate $146,000 in accumulated personal tax benefit brings the total combined benefit to around $417,000, the strongest outcome across every structure modelled in the series.

Full Series Comparison

Bringing together every structure covered across the three-part series under identical core assumptions ($500,000 property, 80% LVR, 5% annual growth), Dom ranks the outcomes: Super C (SMSF plus personal contributions) came out on top, followed by the other super variants, then personal (individual) ownership, then company, with trust coming in last, primarily due to land tax and the lack of any tax benefit on carried-forward losses along the way, consistent with the more detailed trust example explored in the previous episode.

The Real Trade-Off With Super: Access

Both Dom and Jeremy are clear that superannuation's core downside is accessibility, not tax efficiency. Someone starting this strategy at 20 could have a substantial balance by 30, but still face decades before they can actually access it. Jeremy shares a listener example (a 29-year-old considering an SMSF, whose broker suggested it was "for old people") and notes the real question isn't about the raw numbers, which clearly favour super, but when the investor actually needs to live off the money, since building wealth outside super may allow earlier access even if the after-tax outcome is somewhat lower.

Dom also flags the $3 million total super balance threshold (in effect from 1 July, at the time of recording) as a factor worth checking for investors accumulating substantial balances within super. He and Damien discuss a combined "bridge" strategy some clients use: continuing to work part-time or drawing down other assets between an earlier retirement (say, in their 50s) and reaching super's preservation age, rather than relying purely on one structure.

Super Funds Cannot Be Lived In

Dom confirms an SMSF-owned property cannot be occupied by the member or anyone related to them, ruling this structure out entirely for anyone planning to eventually live in the property or use it as a stepping stone toward an owner-occupied purchase, and that major renovation or development work is generally restricted while a loan remains in place on the property, though minor repairs and maintenance are permitted.

The Ultimate Tax-Free Combination

Both agree the most tax-effective long-term combination is a super fund in pension phase alongside an investor's own principal place of residence, since both are effectively capital-gains-tax-free once the relevant conditions are met, a strategy that favours frequent moves (upgrading, renovating, and reselling an owner-occupied home) alongside disciplined super contributions over time.

Comparing After-Tax Contribution Value to Paying Down Debt

Dom illustrates why directing surplus cash into super contributions (rather than debt repayment) can be more effective while still earning income: a personal contribution taxed at only 15% within super, compared to a 39% marginal tax saving personally, represents a roughly 24 percentage point efficiency gain, similar in effect to earning a guaranteed 24% return simply by choosing which account the money goes into, compared to paying down debt at a 6% interest rate saving alone.

Complex Structure Example 1: A Trust as Shareholder of a Company

Dom presents a more advanced variation: instead of a company having fixed individual shareholders, a family (discretionary) trust holds the shares instead. This means dividends paid out by the company each year can be directed to whichever beneficiary makes the most tax sense at the time (rather than being locked to fixed shareholders who may, over time, end up on higher incomes than originally anticipated), unlocking more flexible use of franking credits over the life of the structure.

Complex Structure Example 2: An Internal "Lending" Company

Dom outlines a structure historically used more in business lending, now adapted for property: rather than an individual borrowing directly from the bank, a separate company borrows from the bank, then on-lends the funds to the individual, who uses it to buy the property. The bank loan to the company is repaid on a standard term (say, 25–30 years), but the loan between the individual and their own company can be structured as interest-only indefinitely. As the company's loan to the bank reduces over time while the individual continues paying the company at the original (higher) loan amount's interest rate, the company itself gradually shifts into profit, taxed at the flat company rate, while the individual retains their full negative gearing position for much longer than if they'd borrowed directly. Layering a family trust in as the company's shareholder (as in the first complex example) then allows that company profit to be distributed to lower-income beneficiaries via franked dividends, effectively preserving a high-income earner's negative gearing benefit for longer while simultaneously extracting tax-efficient income for family members on lower incomes. Dom notes this has been set up for a number of clients specifically in this kind of scenario.

Common Mistakes Dom Sees

Asked what mistakes he most commonly encounters, Dom points to loan structuring decisions made without considering future flexibility, particularly investors who aggressively pay down a loan on their first home, then convert that same property into an investment when upgrading to a new home, only to find they have very little remaining deductible debt against it (since deductibility depends on the original purpose of the borrowing, not the property's current security value), a mistake that's very difficult to unwind after the fact. He also notes lenders respond far more favourably to demonstrated saving behaviour (showing several months of consistent, larger-than-required savings) than to a borrower simply asserting they could cut expenses if needed.

Closing Thoughts

Damien and Jeremy thank Dom for the full three-part accounting series and reiterate his core message throughout: understand your own strategy and cash flow first, and treat structuring decisions (individual, company, trust, or SMSF) as tools to support that strategy, not a starting point in themselves. All commentary in the episode is offered as general information rather than personal financial advice, with both hosts encouraging listeners to speak with their own accountant or financial planner before acting on any of it.