Is a self-managed super fund right for you?
A self-managed super fund (SMSF) is a private super fund that you run yourself, for up to six members. Instead of a large fund deciding how your super is invested, you and the other trustees do. That control is the main attraction, and the main responsibility.
How an SMSF differs from an industry or retail fund
Industry and retail funds are run by professional trustees, regulated by APRA, and pool the money of thousands or millions of members. You choose from their investment options, and they handle everything else.
An SMSF is a trust that you set up, regulated by the ATO. The members are the trustees (or directors of a trustee company). You decide the investment strategy, choose the investments, and are legally responsible for the fund following the rules, with an accountant and an independent auditor checking every year.
What you can do in an SMSF that you can’t elsewhere
- Choose exactly what you invest in: direct shares, term deposits, property, managed funds, or a mix.
- Own your business premises inside super and lease them to your business at market rent. See should I transfer my business property into an SMSF?
- Borrow to buy property through a limited recourse borrowing arrangement.
- Combine family balances (up to six members) to reach a scale that makes investing more efficient.
- Plan estates and pensions with more flexibility over how and when benefits are paid.
What it costs
An SMSF’s costs are mostly fixed, which is why the balance matters. A large fund’s fees are mostly a percentage of your balance; an SMSF’s administration and audit cost roughly the same whether the fund holds $150,000 or $1.5 million.
With us, administration is $295 + GST a month for a fund in accumulation and $315 + GST a month for a fund paying a pension, covering the financial statements, tax return, independent audit, minutes and member statements. Setup is currently $0. On top of that are the ATO supervisory levy, investment and platform costs, and ASIC fees if you have a corporate trustee.
As a rule of thumb, an SMSF starts to be cost-competitive with large funds at around $400,000 in combined balances, and becomes progressively cheaper as the balance grows. Below that, we’ll tell you honestly that it probably isn’t worth it yet.
What being a trustee involves
Every member must be a trustee, or a director of the trustee company, and is legally responsible for the fund. That means:
- having a written investment strategy and reviewing it regularly,
- keeping fund money and assets completely separate from your own,
- meeting the sole purpose test: the fund exists to provide retirement benefits, not to give anyone a benefit today,
- not lending to members, and not buying assets from or leasing to related parties except where the rules allow (business real property is the main exception),
- keeping records, lodging the annual return, and having the fund audited every year.
Breaches can lead to penalties for the trustees personally, and serious breaches can make the fund non-complying, which costs nearly half its value in tax.
Signs an SMSF could suit you
- You have, or will soon have, around $400,000 or more in super across the members.
- You want to choose your own investments, or hold your business premises in super.
- You’re prepared to make decisions and take responsibility, with professional help.
Signs it probably doesn’t
- Your balance is small and not growing quickly.
- You’d rather someone else made the investment decisions.
- You value insurance inside super that’s cheaper through a large fund.
The free consultation is where we work out which side of the line you’re on. If it does suit you, our SMSF service covers setup, accounts, tax and audit for one fixed monthly fee, and Clarity Wealth can advise on the investment strategy.