A self-managed super fund (SMSF) is a private superannuation fund that you own and manage. In doing so, you get to decide how to invest your super contributions, who can be a member of the fund, and ultimately, whether to keep it running. However, you’re also responsible for ensuring your SMSF complies with all relevant regulations – and dealing with the consequences of non-compliance.
An SMSF can be a powerful tool for saving for retirement as it offers greater control over investments, the ability to pool savings with other members, and more flexible costs. However, the process of setting up an SMSF can be complicated – especially when it comes to fully understanding the associated costs of creating a super fund
In this post, we take a detailed look into SMSF set-up costs and the ongoing expenses required to run a super fund.
How much does it cost to set-up an SMSF?
The cost of creating an SMSF will depend on how you set-up your super fund and what you intend to use it for. Here’s an explanation of the various SMSF fees you may incur when setting up your self-managed super fund.
A trust deed is a legal document that’s mandatory when setting up an SMSF (as an SMSF is a type of trust). It sets out the rules for the establishment of your SMSF and its ongoing operations. The trust deed includes important details such as the SMSF’s objectives, the number of members and who’s eligible to join the fund, and when and how benefits will be paid out, i.e., a lump sum or monthly income.
Corporate trustee set-up costs
A corporate trustee is a special type of company that you can create to be the sole trustee of your SMSF. A corporate trustee can be especially useful when the super fund only has one member, because a single person can’t be the sole trustee of an SMSF. Instead, a single-member SMSF must legally have a non-member trustee (typically, one of the member’s relatives) – or a corporate trustee.
The main benefits of creating a corporate trustee are that they can provide greater asset protection, simpler administration, and allow for more efficient succession planning.
Investment and incorporation costs
If you intend to use your super to conduct investment activity, whether purchasing property, trading securities, or similar, the associated set-up costs – e.g., incorporation, opening trading accounts, etc., will be part of your initial SMSF fees.
A common example is a limited recourse borrowing arrangement, which you’ll need if you plan on borrowing capital to purchase property or other assets for investment purposes within your super fund.
Financial and legal advice
If you need to consult an accountant, financial adviser, or lawyer regarding the objectives and structure of your SMSF, the cost of their professional advice will be part of your SMSF set-up costs.
See more: How much does life insurance cost
How much does it cost to run an SMSF?
Now, as well as SMSF set-up costs, you’ll have to manage the ongoing costs of running an SMSF. This will include a few annual administrative costs required to keep your SMSF running. Additionally, in lieu of having your super fund managed by a financial institution, which employs fund managers, administrators, support staff, etc., you’ll have to pay people to help you run your SMSF.
Let’s take a closer look at the ongoing costs associated with running an SMSF.
Ongoing administration fees
At a minimum, your SMSF will need an administrator who’ll help prepare financial statements, complete tax returns, and record minutes in any meetings held about the fund’s status and activities. Additionally, chances are, you’ll also need an accountant to help the administrator with financial matters.
Generally, your SMSF’s administration costs are determined by the way the fund is set up and the nature of its assets. On one hand, an SMSF that’s only comprised of a bank account will incur low admin fees. Conversely, an SMSF that manages several properties will take more time to administer, resulting in higher admin costs.
Annual Audit Fees
Your SMSF must be independently audited every year to ensure its compliant with legislative and regulatory requirements.
Annual ATO SMSF supervisory levy
Another compliance-related cost, the supervisory levy is a mandatory fee paid to the ATO, who is in charge of the regulatory oversight of SMSFs.
Annual ASIC company review fee
Every company needs to undertake an annual ASIC company review to reconfirm their details and demonstrate they’re still solvent. This fee applies to SMSFs with a corporate trustee.
Ongoing professional advice
If you need to regularly consult a financial planner, lawyer, or other consultant or adviser about your SMSF’s investments and assets, you’ll need to factor the cost of their counsel into your fund’s annual expenses. As with the cost of your administrator, the more complex your SMSF’s investment activities, the more professional involvement its likely to need, and the higher the resulting fees.
This refers to the ongoing costs of managing and administrating your fund’s investments and assets. An investment property, for example, will incur agent fees, mutual funds have management fees, and so on.
How much does it cost to close an SMSF?
If you decide to close your SMSF for any reason, such as a member passing away, or it no longer being as financially viable, you will have to pay a few costs.
The main costs of closing your super fund come from administration fees. Your SMSF’s administrator will need to close accounts, transfer assets, etc., all of which incur a cost. Similarly, shutting down some investment vehicles, like mutual funds, for instance, have exit fees you’ll have to pay. Generally, you’ll have to also complete a final tax return, for which you’ll probably incur accountancy fees.
See more: Learning SMSFs Benefits
KPartners – Melbourne’s SMSF Accounting Specialists
We can help you with:
- SMSF set-up
- Ongoing administration and compliance
- Preparation of financial statements and tax returns
- Audit management
- Investment strategy
- Portfolio construction and management
- Borrowing through your SMSF
Please note that all the while the information provided above is factual in nature, it’s also intended to apply generally, and to a broad audience. Subsequently, the information hasn’t taken your personal circumstances or goals into consideration.