A 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
| Pros | Cons |
| Can be cost-effective for large balances | Can be very costly for balances under $200,000 (see the source material below) |
| Gives trustees greater control over their investments inside super | Takes 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 investments | Trustees 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?
| Fee | Low | Mid | High |
| 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 |
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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