If you want to take charge of your superannuation and save for a more comfortable retirement, starting an SMSF may be the solution. However, before choosing the SMSF route, it’s important to not only be aware of the time and effort need to manage your investments but also the costs involved when doing it yourself.
Let’s take a closer look at how much it costs to run an SMSF and how much money you need to invest to make it a viable option for your retirement savings.
How do SMSFs work?
A SMSF is a private superannuation fund, designed to help you save for retirement, that you manage and control yourself. SMSFs can have a maximum of four members. The members of an SMSF are usually also its trustees, allowing them to run the fund for their own benefit. This means you’re responsible for all decisions relating to the fund and for ensuring that you comply with all laws and tax requirements.
But while an SMSF can be ideal if you want to take control of saving for your retirement, there are significant establishment and running costs to contend with. It’s vital that you are fully aware of these costs before deciding whether an SMSF is right for you.
What costs are associated with running an SMSF?
There are a range of costs associated with setting up and running an SMSF. These costs can be broadly separated into three categories: establishment costs, operating costs and investment management costs.
Establishment costs
If you wish to run an SMSF you will first need to formally establish the fund. This involves obtaining a trust deed, appointing a trustee and signing the trustee declaration. According to a 2013 report from Rice Warner, these setup costs can range from $345 up to $990.
However, if you choose the commonly recommended option of using a corporate trustee, where all members of the SMSF are directors of the corporate trustee, covering the resulting Australian Securities and Investment Commission (ASIC) and service provider fees can see establishment costs balloon out to anywhere between $916 and $2,035.
Operating costs
Just like any other super fund, there are costs associated with running an SMSF. These include the expenses associated with investing and taking care of auditing and accounting requirements for your SMSF, and you need to remember that these costs will eat into your retirement savings.
Ongoing operating costs for your SMSF include:
An annual ASIC corporate fee
Annual ATO supervisory levy
Audit fees
Costs incurred to prepare financial statements and tax returns
Actuarial certificates if your SMSF is paying an income stream (pension)
Financial advice fees
Valuations of assets held by the SMSF
Legal fees, for example, if you need to make changes to the trust deed
Assistance with fund administration tasks
Insurance for SMSF members
Some of these fees can vary widely based on the complexity of your SMSF and the costs charged by third-party providers (accountants, law firms etc.) that you hire to help ensure you comply with all ATO obligations. You can also choose between full-service providers, which take care of all the fund administration for you, or doing some of the administration yourself.
According to the Rice Warner report mentioned above, the annual operating costs of an SMSF in the accumulation phase can range from $1,163 to $2,367. However, if your SMSF provides a pension, this figure can rise as high as $2,957 per year, while if you opt for a full administration service costs can top the $8,000 mark.
Investment management costs
SMSFs also use managed funds for a small portion of their investments, so the third cost you need to contend with is investment management fees. These expenses vary depending on the size of your investment in managed funds, but for SMSFs with a balance of $500,000, the Rice Warner report calculated annual investment management costs of between $208 and $714.
Finder survey: How many Australians get professional help to manage their SMSF?
Response
No
50.46%
Yes
49.54%
Source: Finder survey by Pure Profile of 1016 Australians, December 2023
An SMSF establishment service can help you get started
SMSF establishment services exist to help you put all the initial pieces together, including setting up your trust structure and trust deed. They can also help open bank accounts and investment accounts for your SMSF, and connect you with legal, tax and audit professionals. You can see a snapshot of some key SMSF establishment services in the table below, and learn more about these services in our guide.
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How much does it cost to run an SMSF?
In December 2016, the ATO released its SMSFs: A statistical overview: 2014–15 report. The report revealed that the average total annual expense ratio of Australian SMSFs is 1.10%. With the average SMSF balance at $1.12 million, that’s an average annual cost of $12,200.
The table below, produced from ATO data, shows how SMSF expense ratios have changed over the past five years. The rise in expenses in 2013 reflects the fact that the ATO began including in its calculations the expenses that SMSFs in the pension phase are unable to claim as tax deductions.
2011
2012
2013
2014
2015
Administration and operating expense ratio
0.32%
0.32%
0.51%
0.52%
0.50%
Investment expense ratio
0.31%
0.35%
0.55%
0.58%
0.60%
Total expense ratio
0.63%
0.67%
1.06%
1.10%
1.10%
The report also revealed a few other interesting statistics:
45.7% of SMSFs have an estimated total expense ratio of 1% or less
59.7% of SMSFs have an estimated total expense ratio of 1.5% or less
SMSFs in the accumulation phase had estimated annual operating expenses of $11,700 while SMSFs in the pension phase had annual operating expenses of $12,600
How much money do I need to start an SMSF?
So what exactly do all these numbers mean? When deciding whether or not to establish an SMSF, the size of your investment matters. The simple fact is that many of the costs associated with running an SMSF are fixed expenses, so they remain exactly the same regardless of whether you have a balance of $50,000 or $2 million. These include costs such as the ATO supervisory levy, audit fees, accounting fees, and the cost of lodging tax returns with the ATO.
To illustrate this point, the ATO’s SMSFs: A statistical overview: 2014–15 report revealed that SMSFs with balances of under $50,000 had average operating expense ratios of 12.55%, while those SMSFs with balances between $500,000 and $1 million had operating cost ratios of 1.43%. The larger your SMSF balance, the less effect your annual operating expenses will have on its bottom line.
With this in mind, it’s important to calculate how large your investment amount should be in order to make establishing an SMSF a cost-effective proposition. In its 2013 report, Rice Warner crunched the numbers to determine the minimum cost-effective balance for an SMSF and produced the following findings.
Minimum cost-effective balance for an SMSF
Less than $100,000: SMSFs are simply not a competitive option when compared with APRA-regulated funds.
$100,000 to $150,000: SMSF costs can be competitive with the cost of larger retail super funds provided that the trustees undertake some of the administration duties. However, industry funds and personal super options are a cheaper alternative.
More than $200,000: SMSFs can be competitive with retail and industry funds if the trustees are willing to take on some of the administration.
More than $250,000: SMSFs can be the cheapest option for balances of this size provided that the trustees undertake some of the administration.
More than $500,000: If you have a balance of above $500,000, the report found that SMSFs can be the cheapest alternative, even if you opt for full-service administration.
To sum up, the report found that you would need a balance of at least $200,000 to $250,000 if you’re willing to do some of the administration yourself, while if you opt for full-service administration, this only becomes cost-effective when you have a balance of $500,000 or more.
Of course, operating costs can sometimes vary substantially from one SMSF to the next, so it’s important that you fully understand all the potential expenses involved before deciding whether an SMSF is the right choice for you.
Are SMSF setup and operating expenses tax deductible?
Yes. Many of the setup, admin and ongoing operating expenses paid by your SMSF are tax deductible with the ATO. Any tax deductions you claim for your SMSF need to relate to your assessable SMSF income (not your personal income). Here's some common expenses that your SMSF may be able to claim as a tax deduction:
Management and admin costs for the day-to-day running of the SMSF, such as office supplies and equipment.
SMSF auditor fees
Fees incurred for getting your SMSF tax return done with a registered tax agent
ASIC annual fee paid by a corporate trustee
Investment expenses including management fees paid to financial planners and brokerage fees
Fees paid to a financial planner for ongoing investment advice and portfolio maintenance
Fees incurred through an investment property such as rental property costs and property management fees
Costs relating to insurance and storage of investments like artwork, antiques and collectible items
How to claim SMSF expenses as tax deductions
You generally need to claim the expense as a tax deduction in the financial year that you incurred the expense. Like your personal tax return, SMSF trustees will need proof of receipts for the expenses they wish to claim. Any receipts that are in the name of an individual trustee rather than the SMSF's name generally cannot be claimed as a deduction. If an expense needs to be split between a personal expense and an SMSF expense, your tax agent can help with this.
Frequently asked questions
While $100,000 is often considered a reasonable starting amount for an SMSF, the ATO suggests you might need at least $200,000 to make it cost-effective due to fees and administrative costs.
SMSFs generally pay 15% tax on income, the same as regular super funds. If the SMSF is in the pension phase, tax on investment earnings may reduce to 0%.
Setting up an SMSF can be worth it if you want more control over your investments and have sufficient funds to manage the costs effectively. However, SMSFs require significant time and expertise to manage.
There are limits to how much you can contribute to your SMSF each year. The concessional (pre-tax) contribution cap is $30,000, and the non-concessional (after-tax) contribution cap is $110,000.
SMSF fixed fees for services like accounting and administration can vary, starting at around $1,500 per year and increasing based on complexity and services provided.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
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