Key takeaways
- Shares and ETFs let an SMSF invest directly and build a diversified portfolio at low cost.
- Franking credits on Australian dividends can reduce, and sometimes refund, the fund's tax.
- All holdings must be in the fund's name, with their own holder identification number.
- Trustees still need diversification, records and a strategy, not just a brokerage account.
Direct shares and exchange-traded funds (ETFs) are popular SMSF holdings, and for good reason. They are transparent, easy to value, simple to buy and sell, and they let trustees build a diversified portfolio without the cost layers of some managed products.
Why trustees like them
- Control. You choose the companies or indices, rather than accepting a fund's pre-set option.
- Low cost. Broad-market ETFs in particular offer wide diversification for a small fee.
- Transparency. Prices and holdings are clear, which makes valuation and record keeping straightforward.
Franking credits in an SMSF
Australian companies often pay franked dividends, carrying credits for tax already paid by the company. In a super fund, those franking credits offset the fund's tax, and because the fund's tax rate is low, they can reduce it substantially. A fund in pension phase, paying little or no tax, may even receive a refund of excess franking credits. This is one reason Australian shares are common in SMSF portfolios.
Ownership and the holding details
Shares and ETFs must be held in the fund's name, not a member's. The fund has its own holder identification number (HIN) with the broker or share registry. Keeping the holding clearly in the fund's name is part of the rule to keep fund assets separate from personal assets, and auditors check it.
Do not forget the basics
A brokerage account is not a strategy. The usual obligations still apply: invest in line with the investment strategy, consider diversification, keep records of every trade and dividend, and value holdings at year end. The freedom to trade directly works best alongside the discipline the fund requires.
Frequently asked questions
- Can an SMSF claim franking credits?
- Yes. Franking credits on Australian dividends offset the fund's tax. Because the fund's tax rate is low, they can reduce it significantly, and a fund in pension phase may receive a refund of excess credits.
- Whose name do SMSF shares go in?
- The fund's. Shares and ETFs are held in the name of the trustees as trustee for the fund, with the fund's own holder identification number. They must never be held in a member's personal name.
- Can I transfer my personal shares into my SMSF?
- Listed securities are one of the limited exceptions to the related-party acquisition rule, so you can transfer them in at market value. This counts as a contribution, so it uses your contribution caps and needs to be documented.
