What are the costs of SMSF’s?

 

In my 30 years as a Financial Adviser, perhaps the most common misconception I have had to address with clients, is that Self Managed Super Funds (SMSFs) cost less.

 

The reality is, that whilst this may be true for some, it is not the case for all.

 

According to the Association of Superannuation Funds of Australia (ASFA), in their update for the quarter ended 30 September 2023, there were 24 million superannuation accounts in Australia, of which only 1.1 million were held in SMSFs. Although this may not seem a significant proportion of all accounts, in fact it represents less than 5% of all super accounts, what is interesting is that these accounts represent $878 billion of the total $3,541 billion invested. That is a staggering 25% of the value invested and ranks second only to the Industry Fund Superannuation Sector.

For more information, you can refer to the link below:-

 

SuperStats_September23.pdf (superannuation.asn.au)

 

It is true that SMSFs offer members the greatest choice and flexibility for the investment of their benefits, albeit with certain limitations. The ability to control the investment decision, is often the reason that SMSFs are chosen as a way of managing a person’s superannuation benefits and the other is the ability to control costs.

 

This article will address the costs associated with SMSFs, rather than the types of investments available to Trustees and Members, although the choice of assets, can and does impact the costs.

 

There are a number of factors that determine the costs of establishing and then managing a SMSF. Here are some of the more common costs, but please understand that this list is by no means exhaustive:-

 

Establishment Costs

 

A SMSF is a Trust structure and as such, there is quite a lot involved in its establishment and costs for each step in the process.

 

Depending upon your choice between appointing a Corporate Trustee or Individual Trustees, the costs will vary significantly.

Either way, the set up costs will include the legal and administrative fees for preparing the trust deed, if need be, establishing a corporate trustee (a company), obtaining the Australian Business Number (ABN) and applying for a Tax File Number.

 

By way of example, an indicative cost for fund establishment from reputable firms, is anywhere from $1,320 to $2,200 GST Inclusive, including:-

 

• Incorporating a special purpose company to be the trustee of the fund;
• Preparing all of the documents required to establish the fund;
• Any ASIC & ABR reporting; and
• Preparation of Standard Death Benefit Deeds or standard Binding Death Benefit Nominations. (Anything not standard is likely to cost more.)

 

Administration and Operating Costs

 

Once established, you then have your ongoing administration and operating costs, which include various accounting fees for the preparation of the fund’s annual financial statements, annual taxation return and the annual Audit. There are also various other requirements, such as the ATO Supervisory Levy. The costs associated with these items can also vary depending upon the complexity of the fund’s investments and related transactions. The costs can also vary depending on your choice of service provider, as some SMSF’s may use their Accountants, whilst others may elect to appoint a SMSF Administration Service Provider.

 

Indicative costs for some of the ongoing costs and what these include:-

 

$3,000 to $4,000 – Annual Administration Costs

 

There may be years in which additional requirements will bring further costs. These might include:-

 

$1,320 to $1,980 – Change in Trustee

 

• Incorporating a special purpose company to be the trustee of the fund;
• Preparing all of the documents required to establish the fund; and
• Any ASIC & ABR reporting.

 

$550 – Pension Commencement / Pension Rollback

 

• Includes all of the documents required to record the commencement / rollback of a pension, along with the calculation of the annual Minimum and/or maximum pension.

 

Other examples of costs include, but are not limited to:-

 

$550 – Interim Accounts Fee

$495 – Change of Name of the SMSF

$495 – Adding a member

$495 – Removing a member

$495 – Change of Director (Trustee)

$495 – Appointing or removing an Enduring Power of Attorney

$550 – Deed Update

$550 – Binding Death Benefit Nomination

$550 – Death Benefit Deed

 

Investment Costs

 

With the purpose of superannuation being to provide retirement and death benefits to the members and or their beneficiaries, it is necessary that the SMSF invest the capital in accordance with the member’s tolerance for risk and need for cash flow.

 

To ensure that the fund will achieve these goals, a SMSF will incur various investment-related costs such as wrap platform fees, investment management fees, brokerage fees and other transaction costs associated with buying and selling assets within the fund.

 

In the instance where a SMSF holds property, there are also various costs associated with buying and then holding property. These include the usual duties and taxes, but they may also include property management costs, insurances and a range of other expenses.

 

If the property is purchased with debt under a Limited Recourse Borrowing Arrangement (LRBA), then there are costs associated with this too, an example of which is:-

 

$1,540 – LRBA Establishment

 

• Includes incorporating a company to be the custodian;
• Reporting to ASIC; and
• Preparation of all the necessary documents to establish the custodian trust.

 

Insurance Premiums

 

The trustees of the SMSF may also opt to provide insurance coverage for the fund members. The associated premiums then add to the overall costs of the SMSF each year, which often increase over time.

 

Other Legal and Professional Costs

 

Depending on the circumstances, other legal and professional fees may be incurred for advice sought. This can occur for a variety of reasons but often relate to changes to the member’s estate planning and can also include financial advice.

 

 

It is fair to say, that having a SMSF can be like running a small business. As you will see from the information above, this is most certainly true. There are both opportunities in using a SMSF and equally, there are also legal responsibilities for the Trustees in doing so.

With our superannuation benefits often the second biggest asset we accumulate in addition to our homes, it is essential that we get this right.

 

We at Profile, assist our clients in understanding when a SMSF is appropriate and how to manage their choices around administering the fund in a cost effective manner, considering the options for investment and estate planning.

 

Before you make the decision to establish a SMSF, or if you want to consider whether you should retain the one you already have, we strongly recommend you seek professional advice to understand the specific costs applicable to you and your financial situation.