If you run an SMSF, a scheme called the Compensation Scheme of Last Resort probably isn't on your radar. It should be now. Assistant Treasurer Daniel Mulino has confirmed the government is looking at widening who pays for it, and self-managed super funds are explicitly on the list of sectors being considered.

I want to be clear about where this sits today: nothing is decided. But the direction of travel matters for anyone building wealth through an SMSF, because it's another example of a cost that started somewhere else in the financial system slowly working its way toward super. Here's what's actually being proposed, why it's happening, and what I'd be watching if I were you.

What the CSLR actually is

The Compensation Scheme of Last Resort exists to pay consumers who win a complaint through the Australian Financial Complaints Authority but can't recover the money because the financial firm involved has collapsed or gone insolvent. Think of it as a backstop for when the usual channels fail. It was created after a string of high-profile financial collapses left people with valid claims and nowhere to collect. Right now, the CSLR is funded mainly through a levy on financial advisers, with a broader industry mechanism kicking in when losses exceed the levy cap for a subsector. That cap has already been exceeded once, and the scheme is now running a shortfall of more than $170 million, driven substantially by claims linked to collapsed investment schemes.

Why the government wants to widen who pays

The financial advice sector has been carrying most of the cost, and advisers are not quiet about it. Industry figures have warned that government levies, combining the CSLR levy with the separate ASIC industry funding levy, could push well past the previous year's totals for the average adviser this year alone. That's put real political pressure on the government to spread the load. Mr Mulino has floated a three-tier "waterfall model." Under this approach, the sector most directly connected to a given collapse pays first. For cases like the First Guardian and Shield investment fund failures, that's the financial advice sector. If losses exceed what that first tier can absorb, the shortfall cascades to other parts of the financial system that the minister determines are sufficiently "proximate" to the losses. That's where large superannuation funds, and potentially SMSFs, come in.

Where SMSFs fit in the conversation

Mr Mulino has said directly that the government is "still determining" whether SMSFs will be part of the widened funding base. That's an honest answer, not a decided one, but the fact that SMSFs are even named alongside APRA-regulated large super funds tells you something about how broad the government's thinking has become. The superannuation sector overall, sitting at roughly $4.4 trillion of Australians' savings, is viewed by Treasury as one of the few pools of capital large enough to absorb ongoing shortfalls if adviser-only funding proves unsustainable. Predictably, the response from different corners of super has been mixed. Super Consumers Australia has pushed for a broader base of contributors, arguing more of the financial system should share the cost. The Super Members Council, representing large industry funds, is resisting, arguing any levy would simply be passed straight through to members' account balances, which is exactly the outcome SMSF trustees should be thinking about too, since an SMSF has no one else to pass a cost onto except its own members.

The other moving part: the "but for" test

A second reform under discussion would remove what's called the "but for" test from CSLR payouts. Right now, compensation can include not just what a person invested but an estimate of what they would have earned if they'd received appropriate advice in the first place. Removing this test would mean payouts strictly reflect money actually lost, not lost opportunity. This isn't about who pays the levy, but it does affect how big future shortfalls are likely to be, which in turn affects how much pressure builds behind widening the funding base in the first place.

Why this matters even if you'll never make a CSLR claim

Most SMSF trustees will never need to lodge a complaint through the financial complaints authority. That's not really the point. If SMSFs end up captured in a widened levy base, the mechanism for collecting it is likely to sit somewhere in existing fund administration, whether through the ATO's SMSF supervisory levy, an addition to annual return obligations, or some other structure Treasury hasn't designed yet. For a fund in accumulation phase actively acquiring assets and managing cash flow, any new recurring charge is one more line item to plan around, even a modest one. There's also a compounding effect worth naming honestly: SMSF trustees are already absorbing other regulatory changes this year, from Division 296 on large balances to payday super administration requirements. A CSLR levy would be one more addition to that list, not an isolated cost.

What to watch and how to plan

  • Follow the Treasury consultation, not just the headlines. The waterfall model is a discussion paper concept right now. The actual design, including whether SMSFs are captured and at what rate, will come out of a formal consultation process with draft legislation to follow. That's where the real detail will emerge.
  • Don't restructure based on a maybe. It's tempting to consider winding up an SMSF or shifting to an APRA-regulated fund because of levy uncertainty. That's premature. Both categories of fund are named as potentially exposed, and any levy is likely to be modest relative to the other costs and benefits of running your own fund.
  • Build a buffer into your fund's operating costs assumptions. If you're modelling ongoing SMSF running costs as part of your annual budget, it's sensible to build in headroom for a new compliance or levy cost over the next one to two years, rather than assuming today's cost base is permanent.
  • Keep an eye on how large funds respond. If APRA-regulated large funds successfully resist inclusion, or negotiate a lower proportional contribution, that increases the political and practical pressure to include the SMSF sector to make the maths work. The two sectors' fates in this debate are somewhat linked.
  • Talk to your accountant before your annual SMSF return, not after. If a levy mechanism does land inside SMSF administration requirements, you'll want it factored into your fund's cash flow and contribution planning rather than discovering it as a surprise bill.

My take

I think some form of broader industry contribution to the CSLR is probably coming, because the current adviser-only model is visibly buckling under the weight of recent large-scale collapses. Whether SMSFs specifically get captured is genuinely unresolved, and I wouldn't be surprised if the final design ends up targeting large APRA funds more heavily than SMSFs, given the political optics of taxing self-funded retirees and near-retirees who didn't cause the underlying losses. Still, "unresolved" is not the same as "unlikely." Worth watching closely, not worth panicking about yet.

Frequently Asked Questions

What is the CSLR and who pays for it now?

The Compensation Scheme of Last Resort pays compensation to consumers who have an unpaid determination from the Australian Financial Complaints Authority against a financial firm that has since collapsed or cannot pay. It's currently funded mainly by a levy on financial advisers, with a broader industry funding mechanism for shortfalls above the sector cap.

Will SMSF trustees definitely have to pay a CSLR levy?

No, it is not decided. The Assistant Treasurer has said the government is still working out whether SMSFs will be part of any widened funding base. It's a live consultation issue, not settled policy, and any change would need legislation.

What is the three-tier waterfall model?

It's a proposed structure where CSLR shortfalls are allocated first to the sector most closely connected to the underlying losses, such as financial advice for cases like First Guardian and Shield, before spreading further to other parts of the financial system, potentially including large superannuation funds and SMSFs, if losses aren't fully recovered from the first tier.

Why is the government considering widening the CSLR levy base?

The scheme has faced a shortfall of more than $170 million against its funding, driven by high-profile collapses. The financial advice sector, which currently carries most of the levy, has warned that per-adviser costs are becoming unsustainable, prompting the government to look at spreading the funding base more broadly.

How would an SMSF actually be levied if this goes ahead?

The mechanism hasn't been designed yet. Options could include a levy on large APRA-regulated funds that flows through to member fees, or a more direct charge tied to SMSF administration or the ATO's SMSF supervisory levy. Until legislation is drafted, any specific mechanism is speculative.

Is the CSLR levy the same as the ASIC industry funding levy?

No, they're separate charges. The ASIC industry funding levy recovers ASIC's regulatory costs from different sectors. The CSLR levy specifically funds compensation payouts to consumers. Both have been rising and both are currently under review, but they operate under different legislation.

When will we know if SMSFs are included in the CSLR levy?

Treasury's consultation process is ongoing through 2026. Any change would likely require amendments to the CSLR's governing legislation and would be subject to further consultation, drafting, and parliamentary passage before taking effect, so there is no confirmed timeline yet.

If you're building wealth through an SMSF and want to make sure your fund's structure and cash flow can absorb regulatory changes like this one without derailing your accumulation strategy, that's exactly the kind of planning conversation worth having now.

Apply for a Strategy Session to review your SMSF planning.

Andrew Romano is a Chartered Accountant and SMSF Specialist based in Sydney. He works with high-income individuals, business owners and investors on tax planning, structuring and self-managed super funds.

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