SMSF Shares, ETFs & Managed Funds Guide
Listed shares, ETFs, LICs and managed funds are the most commonly held assets in Australian SMSFs. This guide covers what is permitted, how these assets should be held, the tax advantages available, and the record-keeping mistakes trustees most often make.
Key facts at a glance
About this guide: Super Informed maintains this page as general information for Australian SMSF trustees. It is reviewed each financial year and updated when ATO, ASIC, or superannuation guidance changes. It does not replace advice from a licensed financial adviser, SMSF specialist, registered tax agent, or solicitor.
Can an SMSF hold shares, ETFs and LICs?
Yes. Listed shares, exchange-traded funds, listed investment companies and listed managed units are usually among the simplest assets an SMSF can hold. The compliance traps are easy to miss precisely because the asset class feels familiar: informal share transfers, the wrong HIN, missing DRP records and unsupported franking credit claims can all create audit problems.
Key terms before buying
Listed investments are operationally simpler than property, but the labels matter for related-party transfers, tax and audit evidence.
A share, ETF, LIC, listed unit or bond traded on an approved securities exchange such as the ASX.
Moving an asset into the SMSF without a cash sale. Listed securities can be acquired from related parties at market value.
A credit for Australian company tax already paid, used to offset SMSF tax and potentially refunded.
The ASX settlement and registration system. The SMSF should use its own HIN, not a member's personal HIN.
A DRP reinvests dividends into new shares. Each reinvestment creates a new acquisition parcel with its own date and cost base.
How does the sole purpose test apply?
For listed shares and ETFs, the sole purpose test is rarely a practical problem because the asset cannot usually be personally occupied or used. It can still matter where the fund buys shares for a purpose unrelated to investment return, such as gaining influence over a related business or supporting a struggling related entity.
What does the ATO look for?
- In-specie transfers of personally held listed securities processed at market value with the member's CGT event recognised
- Assets held in the fund's name, not a member's personal brokerage account or HIN
- Dividend and franking credit claims supported by proper statements and eligibility records
- Concentration in a single stock or related entity explained in the investment strategy
- DRP acquisitions tracked as separate acquisition parcels for CGT purposes
Listed investments have a low compliance footprint compared with property, but that can breed complacency. ATO and auditor checks can compare CHESS, broker, registry and tax records, so informal transfers and personal-HIN holdings are usually visible rather than hidden. Fixing the record trail later is slower, more expensive and much less comfortable than setting it up correctly at the start.
What are the investment strategy requirements?
Every SMSF must have a written investment strategy. For a fund heavily weighted to listed investments, the strategy should explain the allocation, the role of ETFs or managed funds, concentration risk, liquidity and member circumstances.
What must the strategy address?
- Risk and return objectives
- Asset classes the fund can hold and why
- Diversification and concentration risk
- Liquidity needs, especially for pension payments
- Insurance needs of members
When should it be updated?
Review the strategy at least annually and whenever the fund materially changes its asset allocation, adds international exposure, moves into pension phase, starts regular drawdowns, or becomes concentrated in one or two positions.
See the Investment Strategy Guide for the full framework.
Why does liquidity matter?
Listed shares and ETFs are usually liquid, but trustees in pension phase still need enough cash or saleable assets to meet minimum annual drawdowns. A portfolio dominated by thinly traded small caps, suspended securities or DRP elections with little cash income can create drawdown timing issues.
The ATO has repeatedly focused on investment strategies that are generic, templated or disconnected from actual fund holdings. A fund with 85% in listed equities, or a large position in one stock, needs a strategy that explains that exposure rather than hiding behind broad wording.
How do in-specie transfers work?
An in-specie transfer moves an asset from personal ownership into the SMSF without selling for cash first. Listed securities can be transferred into an SMSF, but the transfer must be documented at market value and triggers personal tax consequences for the transferor.
Rules for listed share transfers
- The transfer is a related party acquisition, but listed securities are an express exception if acquired at market value
- Market value is measured on the transfer date, not the original purchase price
- CGT event A1 is triggered for the member personally at that time
- The SMSF's cost base becomes the market value at the date of transfer, plus any incidental costs
- The amount may also count as a contribution if the fund does not pay market value in cash, so contribution caps must be checked
Transfer records to keep
- Off-market transfer form or broker transfer evidence
- ASX closing price or broker evidence for the transfer date
- CHESS registration change from personal HIN to fund HIN
- Member's CGT calculation and any contribution classification workpaper
Employee share scheme shares
ESS shares can have taxed-upfront or deferred taxing points before any SMSF transfer. Confirm the personal ESS position with a registered tax agent before transferring them, because the ESS rules and the in-specie CGT event can interact in unexpected ways.
An informal transfer from a personal brokerage account to the SMSF can create multiple issues at once: a related-party acquisition, a contribution classification question, a personal CGT event and a fund cost base reset. CHESS and broker records make these movements traceable, so the paperwork and market value evidence need to match the actual transfer date.
How do franking credits work in an SMSF?
Franking credits are one of the major tax advantages of Australian shares inside an SMSF. They are valuable because a complying SMSF's accumulation tax rate is 15%, while many Australian company dividends carry credits for tax paid at up to 30%.
Accumulation phase example
A $70 fully franked dividend with a $30 franking credit is grossed up to $100 of assessable income. At a 15% fund tax rate, tax is $15. The $30 franking credit offsets that liability and may produce a $15 refund.
Pension phase treatment
Where shares support retirement phase income streams, the dividend may be exempt under ECPI. If the fund is entitled to the franking credit tax offset, excess credits can be refundable through the SMSF annual return.
The 45-day rule and integrity rules
Franking credits are not automatic. The fund must be entitled to the franking credit tax offset. Integrity rules can deny credits where the fund does not hold the shares at risk for the required period, makes related payments, engages in dividend washing, or enters arrangements designed to obtain franking benefits.
For ordinary shares, the holding period rule generally requires shares to be held at risk for at least 45 days, excluding the acquisition and disposal days. Preference shares generally use 90 days.
Franking credits can materially improve SMSF after-tax returns, especially in pension phase, but the fund still needs dividend statements and eligibility evidence. A refund claim is only as strong as the records supporting both the dividend and the credit entitlement.
What are the rules for managed funds and unit trusts?
Managed funds and unit trusts range from simple widely held retail funds to complex related-party private unit trusts. The compliance treatment depends heavily on who controls the trust and what the trust does.
Widely held managed funds
Retail or wholesale funds offered by independent fund managers are usually straightforward. Units are available to investors generally, no related party controls the fund, and year-end unit pricing is usually supplied by the fund manager.
Private unit trusts
Non-widely held unit trusts, family trusts and private investment vehicles need careful related-party analysis. If a member or associate controls the trust, the SMSF's units may be in-house assets subject to the 5% limit.
13.22C and 13.22D trusts
Regulations 13.22C and 13.22D can allow some investments in related companies or unit trusts to be excluded from in-house asset treatment, but the conditions are strict and ongoing. The entity generally cannot borrow, cannot lease most assets to related parties, cannot hold interests in other entities, and cannot hold assets that would breach SMSF rules if held directly.
If a disqualifying event occurs, the exclusion can be lost and the investment may become an in-house asset. Specialist advice is essential before an SMSF invests in any related unit trust.
Widely held managed funds and ETFs are usually simple. Related-party unit trusts are the opposite: one borrowing, lease, asset or control problem can change the compliance treatment of the entire investment.
How is CGT calculated on listed investments?
Listed investments use the standard SMSF CGT framework, but frequent trades, DRPs and corporate actions make parcel-level records essential.
SMSF CGT rates for listed investments
| Holding period | Fund phase | Effective CGT rate |
|---|---|---|
| Held over 12 months | Accumulation phase | 10% after the one-third discount |
| Held under 12 months | Accumulation phase | 15%, with no discount |
| Any holding period | Retirement phase | Potentially 0% under ECPI |
Cost base tracking
Cost base generally includes purchase price plus brokerage. DRP shares are separate parcels with their own acquisition date and cost base. In-specie transfers use market value on the transfer date as the fund's cost base.
Corporate actions
Share splits, consolidations, bonus issues, rights issues, demergers and scrip takeovers can all change cost bases or parcel records. Keep registry notices and tax statements for each event.
How should shares, ETFs and managed funds be held and recorded?
The ownership and banking rules are simple but strict: assets and income must be clearly separated from members' personal assets.
Title and HIN
Listed investments should be registered in the name of the trustee or corporate trustee in trustee capacity and held under the fund's own HIN. Do not use a member's personal HIN.
Bank and broker accounts
Purchases, sales, dividends and distributions should flow through the fund's dedicated bank and brokerage accounts. Personal accounts create separation and audit problems.
Dividends and distributions
Keep statements showing payment date, cash amount, franking credit, franking percentage, TFN withholding if any, and attribution components for managed fund distributions.
DRP elections
Each DRP allocation is a new acquisition. Record the date, number of securities, issue price, franking details and resulting parcel cost base.
What happens when the SMSF sells listed investments?
Share and ETF disposals are common, but every sale still needs a contract note, parcel identification and a capital gain or loss calculation.
Sale records
Keep the broker contract note, quantity, sale price, brokerage, settlement date, parcel cost base, and the capital gain or loss calculation. Where there are multiple parcels, identify which parcel was sold. Do not rely on unsupported average cost.
Capital losses
Capital losses in the SMSF can only be offset against capital gains of the fund. They cannot be distributed to members or offset against ordinary income, but unused net capital losses can be carried forward.
Timing sales around pension commencement
Shares with large unrealised gains sold after a member commences a retirement phase pension may benefit from ECPI. Timing disposals relative to pension commencement is a genuine planning opportunity, but it must be considered with transfer balance cap, total super balance and minimum pension rules.
What share and ETF mistakes should trustees avoid?
These listed investment mistakes are common because the asset class feels familiar. The SMSF wrapper changes the evidence requirements.
9 common share, ETF and managed fund mistakes
- 1Transferring shares without formal paperwork. Off-market transfer evidence, market value and personal CGT records are needed.
- 2Holding assets under a personal HIN. A personal HIN does not clearly evidence fund ownership.
- 3Receiving dividends into a personal account. Fund income should flow into the fund bank account.
- 4Not tracking DRP parcels. Each reinvestment has its own acquisition date and cost base.
- 5Ignoring franking credit integrity rules. The 45-day rule, related payments rule and dividend washing rule can deny credits.
- 6Investing in a related unit trust without advice. In-house asset and 13.22C/13.22D rules are technical.
- 7Using a generic investment strategy. Concentrated listed portfolios need a real explanation.
- 8Missing managed fund annual tax statements. Attribution components, capital gains and franking credits need to be reported correctly.
- 9Not maintaining parcel-level CGT records. Reconstructing years of trades and DRPs later is slow and error-prone.
Related resources: The Rules & Limits Reference covers in-house asset, sole purpose and arm's length rules. The Investment Strategy Guide explains strategy documentation. The SMSF Compliance Calendar tracks annual return and reporting deadlines.
Common SMSF shares and ETFs questions
These answers cover the practical questions trustees most often ask before buying, transferring or selling listed investments inside an SMSF.
Can an SMSF hold shares and ETFs?
Yes. Listed shares, ETFs and LICs are among the most straightforward SMSF assets, provided they are held under the fund's accounts and records.
Can I transfer my existing shares into my SMSF?
Yes, if they are listed securities transferred at market value. The transfer triggers a personal CGT event and may also count as a contribution if the fund does not pay cash.
How are franking credits taxed in an SMSF?
They offset the fund's tax liability and excess credits may be refundable if the fund is entitled to the tax offset. Holding period and integrity rules still apply.
Do SMSF shares need to be in the fund's name?
Yes. They should be registered in the trustee's name in trustee capacity or the corporate trustee's name, under the SMSF's own HIN.
Can I use a DRP inside my SMSF?
Yes. Each DRP reinvestment must be recorded as a separate acquisition with its own date, quantity, price and cost base.
What CGT rate applies when my SMSF sells shares?
In accumulation phase, gains are generally taxed at 15%, or 10% after the one-third discount if held for more than 12 months. Eligible pension-phase gains may be exempt under ECPI.
Can my SMSF invest in managed funds?
Yes. Widely held retail and wholesale managed funds are usually straightforward. Related-party or non-widely held unit trusts need specialist advice.
What records does my SMSF need for shares?
Contract notes, dividend and distribution statements, franking credit records, DRP records, CHESS/HIN evidence, corporate action notices and parcel-level CGT records.
What is the in-house asset rule for unit trusts?
If a member or associate controls or has a material interest in a unit trust, an SMSF investment in that trust may be an in-house asset and subject to the 5% limit.
Can I sell shares after pension commencement to reduce CGT?
Potentially. Eligible gains after pension commencement may benefit from ECPI, but timing should be checked with an SMSF specialist because transfer balance and pension rules also matter.