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.

 

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
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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

ASIC Data Source

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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).

Test Your Knowledge

Meet Bucky. Bucky has commitment issues. He starts things but has a habit of not following through with them when times get tough. He has a super balance of $180,000 and wants to start an SMSF. You (correctly) advise Bucky to…

With large super balances, an SMSF may be cost-effective. 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 admin work. What's more, they require more time and effort than normal super funds -- sorry, Bucky!

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