Key Highlights

• The Compensation Scheme of Last Resort can compensate eligible consumers after other recovery avenues have failed.

• No. The relevant funding and structural measures discussed are proposals requiring further policy and legislative action.

• Losses linked to SMSF investments have placed substantial pressure on compensation funding and consumer-protection settings.

• Trustees should monitor the final funding model, eligibility settings, levy design and commencement provisions.

A compensation scheme under funding strain

Australia's Compensation Scheme of Last Resort (CSLR) began paying consumers who had suffered losses from financial misconduct where the responsible firm had collapsed and could not pay an Australian Financial Complaints Authority (AFCA) determination. The scheme is funded by industry levies. As claims have mounted — particularly from advice-related failures — questions about how the scheme is funded, and by whom, have moved to the centre of policy debate.

On 19 August 2026, the Assistant Treasurer and Minister for Financial Services, Dr Daniel Mulino, announced a package titled "Protecting Consumers and the Promise of Superannuation", with further detail provided at the National Press Club on 20 August 2026. It includes proposed reforms to how the CSLR is funded. Crucially, Treasury has said it will "continue consulting with industry, consumer groups, regulators and other Stakeholders to progress legislation implementing this package." In other words, these are announced reforms, not enacted law.

What the funding proposal would change

At present, SMSF trustees do not pay a CSLR levy. The announced reforms would introduce a tiered "waterfall" model for years in which a special levy is required — that is, when standard sub-sector levy caps are exceeded and a shortfall remains.

Under the waterfall as described in Treasury's reform materials, funding responsibility would fall in sequence. The first call would be on the sub-sector whose annual levy cap has been exceeded. Next would come sub-sectors whose products or services are connected to the losses. Finally, remaining sub-sectors would act as a defined backstop if a shortfall still remained. Treasury's proposal positions SMSFs as tier-three levy payers — the backstop — and only in years when a special levy is actually triggered.

The Government has indicated that any SMSF contribution would be modest. Based on the announced design, the individual SMSF contribution would be no more than around $20 per leviable period, scaled to the size of the SMSF sector's Assets relative to APRA-regulated sector assets. Separately, the package proposes limiting CSLR compensation to a claimant's actual Investment losses (rather than hypothetical or opportunity losses) for relevant AFCA determinations made after 30 June 2027.

Sitting alongside the CSLR changes, the same package proposes lifting the SMSF supervisory levy — a separate, existing charge that funds ATO regulation of the sector — from $259 to $295, its first increase since 2013, and aligning its timing with fund establishment. That too is proposed, not yet legislated.

What it could mean for SMSFs

For trustees, the headline point is that nothing has changed yet. No SMSF is currently paying a CSLR levy, and none will unless and until Parliament passes enabling legislation. If the reforms proceed as announced, the practical effect for a typical fund would be small in dollar terms — a capped contribution of no more than about $20, and only in a special-levy year rather than every year.

The more significant debate is about principle. SMSF representative bodies have argued that self-managed funds, whose trustees generally do not access the personal financial advice channels most associated with CSLR claims, should not subsidise compensation for losses arising elsewhere in the system. Government materials, by contrast, frame the waterfall as a shared-responsibility backstop designed to keep the scheme sustainable so that consumers who have been wronged can be compensated. Industry reporting has noted that SMSF-related matters have made up a large share of CSLR claims lodged to date, a point cited in the funding discussion; trustees should treat such figures as attributed to the scheme's own reporting rather than as settled policy justification.

Hypothetical example

Consider a fund, the "Rivera Family Super Fund", with two member-trustees. In a future year where a major advice-firm collapse pushes the relevant sub-sector past its levy cap and a special levy is triggered, the waterfall could ultimately reach the SMSF sub-sector as the backstop tier. Under the design announced in August 2026, the Rivera fund's share would be capped — no more than roughly $20 for that leviable period — and it would pay nothing in years when no special levy is required. This is a general illustration of how the proposed mechanism is intended to work, not advice or a prediction of any particular year's outcome.

Status, thresholds and the fine print

Several features are worth keeping straight. The CSLR funding changes, the $20 SMSF cap, the actual-loss limitation from 1 July 2027, and the supervisory levy increase from $259 to $295 are all proposed measures requiring legislation. The supervisory levy is a distinct charge from any future CSLR contribution; conflating the two would overstate what SMSFs pay. Consultation was continuing at the time of writing, and the final design — including whether SMSFs contribute automatically, on an opt-in basis, or not at all — could change as legislation is drafted.

Risks and misunderstandings to avoid

The main risk for readers is assuming the reforms are already in force. They are not. Trustees should be cautious of any commentary suggesting SMSFs "now pay" a compensation levy; that would be inaccurate as at September 2026. Equally, the modest capped amount should not be dismissed as the whole story — the more consequential questions are about scheme sustainability and where responsibility for advice-sector failures ultimately sits.

What trustees should watch next

Trustees can watch for the release of draft legislation and any accompanying explanatory material, the outcome of Treasury's continuing consultation, and confirmation of commencement dates. The proposed 30 June 2027 cut-off for the actual-loss limitation, and the timing of any supervisory levy change, will be set out in legislation if the package proceeds. ATO guidance would ordinarily follow once the law is settled.

The bottom line

The August 2026 package puts SMSFs into the CSLR funding conversation for the first time, as a capped backstop rather than a front-line payer, and only in special-levy years. As at 9 September 2026 it remains a proposal. Trustees who want to understand how it might affect them may wish to seek appropriately qualified advice as the legislation takes shape.