Guide on Trust Funds – Part 13: SMSF vs Trust Funds
In the following table we have compared the benefits and costs associated with having retirement investments in a complying superannuation fund (e.g., an SMSF) with holding these investments in a discretionary trust (with a corporate beneficiary).
| Issue to consider | SMSF | Discretionary trust |
| Concessional tax treatment for earnings and tax exemption for income and capital gains on pension assets | √ | × |
| Concessional tax rate on capital gains made from the disposal of investments (1) | √ | √ |
| Avoiding the application of the45-day holding period rule to qualify for franking credits | √ | × |
| Avoiding the application of the trust loss measures | √ | × |
| Freedom to hold any investment deemed appropriate by the trustees | × | √ |
| Accessing investment returns and capital when deemed necessary by the trustee (i.e., no preservation rules) | × | √ |
| Avoiding high annual compliance costs (e.g., annual audits and member statements) | × | √ |
| Avoiding trustee penalties associated with operating the investment structure | × | √ |
| Avoiding onerous documentation and paperwork requirements (e.g., hold trustee minutes for 10 years) | × | √ |
| Paying franked dividends to shareholders of the private company (with excess credits being claimed as a refund) | × | √ |
| Avoiding restrictions associated with making capital contributions into the trust structure | × | √ |
| Avoiding the application of the deemed dividend rules contained in Division 7A | √ | × |
| Asset protection benefits associated with making non-concessional (or concessional) contributions to the entity (e.g., superannuation fund) (2) | √ | × |
| Potential land tax savings where the entity has invested in real property | √ | × |
It is important to note that a discretionary trust will generally be entitled to claim the 50% discount re capital gains purpose for assets held for at least 12 months. Refer to division 115 of the Income Tax Assessment Act 1997.
