SMSFs Explained (Self Managed Super Funds)

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self-managed super fund or SMSF is a special type of super fund, which can have up to four members who are also ‘trustees’.

The major benefits of an SMSF is the ability make investments and potentially, superior tax planning if the fund complies with super regulations.

SMSF: Pros and Cons

ProsCons
Can be cost-effective for large balancesCan be very costly for balances under $200,000 (see the source material below)
Gives trustees greater control over their investments inside superTakes a lot of time to set up and keep running
Can (potentially) lead to generous tax advantages All super funds have some tax advantages but SMSFs can be slapped with a penalty tax if they do the wrong thing
May actually be enjoyable for people who like dealing with their own finances and making investmentsTrustees can be held personally liable for reckless behavior or breaches of super legislation
May provide additional benefits to small business owners, hoping to use a limited recourse borrowing arrangement 

How much does an SMSF cost?

FeeLowMidHigh
Full administration levy$2,225$3,990$7,200
ASIC fee and ATO Levy$243$243$243
Total Accumulation Fund$2,468$4,233$7,443
Fee if fund pays pension$250$264$330
Actuarial certificate$180$210$260
Total pension (with certificate)$2,898$4,707$8,033

ASIC Data Source

With large super balances, an SMSF may be more cost-effective than a normal super fund (see the table above). However, a study commissioned by ASIC found that if the SMSF has a balance of less than $200,000, it will only be cost-effective against normal super funds if the trustees do some of the administration work.

SMSFs are required to have a trust deed and appoint trustees to manage the fund. Each member is required to be a trustee (or director, if the fund has a corporate trustee) and take part in making decisions for the fund.

This can sound daunting if you are relying on a family member or friend to make investment and taxation decisions for the SMSF, which is why accountants and financial advisers usually play a role in running an SMSF.

Who Regulates SMSFs?

The ATO regulates SMSFs, which can impose harsh tax penalties on the fund if it becomes ‘non-complying’.

One unique benefit of an SMSF is a strategy known as a limited recourse borrowing arrangement (LRBA), which is often used by business owners and sophisticated trustees (with the help of finance professionals) to use debt to buy property.

One Last Thing…

Finally, running an SMSF requires a significant time commitment on behalf of the trustees. And unlike normal super funds, members and trustees of an SMSF do not have access to the Superannuation Complaints Tribunal, so disputes often proceed through the court system (picture $100 dollar bills raining from a judge’s armpits straight into lawyers’ wallets).

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Chief Investment Officer of Rask Invest and Founder of Rask. Since founding The Rask Group in 2017 in the hillside suburb of Upwey, Victoria, Owen has overseen the growth of the Rask platform to over 200,000 investor followers. Today, Owen oversees the Rask Analyst team, which helps more than 4,000 Aussies build core portfolios from ETFs and shares, he hosts Australia's biggest investing podcast, The Australian Investors Podcast, appears on Rask's other channels, covering Property, Business and Finance; and leads Rask Education - our education platform which has enrolled over 25,000 Australians into free finance courses. Prior to founding Rask, Owen was an investment analyst at the highly regarded managed funds research business and a writer/analyst for one of the most well-known share market publications. Owen’s formal qualifications include a Master of Applied Finance and Master of Financial Planning from Kaplan Professional, Bachelor of Technology (Information Systems) from Swinburne University of Technology, Advanced Diploma of Financial Services (Financial Planning) and Diploma of Mortgage Broking Management. He's also completed level 1 of the Chartered Financial Analyst (CFA) program.

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