Is an SMSF worth it? The honest break-even, and the jobs you cannot outsource

Self-managed super funds get sold on control and criticised on cost, and both arguments are usually made with numbers that are ten years out of date. Here is the version we give clients who ask.

What it actually costs to run

An SMSF has a fairly fixed annual cost base regardless of size:

• Annual accounting and tax return — the fund's financial statements and SMSF annual return
• Independent audit — legally required every year, by an approved SMSF auditor who is not your accountant
• ATO supervisory levy — a flat annual amount
• ASIC fee — if you use a corporate trustee, which you generally should
• Actuarial certificate — required in some pension scenarios
• Investment platform, brokerage and bank fees — depends entirely on what you hold

The important structural point: most of that is fixed in dollars, not scaled to your balance. A fund with $200,000 and a fund with $900,000 holding the same assets pay a similar administration bill. So the cost as a percentage of your balance falls sharply as the balance rises, and that percentage is what determines whether you are ahead of a retail or industry fund.

The break-even

Regulators and researchers have landed in broadly similar territory over the years: below about $200,000 an SMSF is usually more expensive than a large fund on a percentage basis, and somewhere between $200,000 and $500,000 it becomes competitive. Above $500,000 the cost argument generally stops being the deciding factor.

Two qualifications that matter more than the headline number.

Combined balances count. An SMSF can have up to six members. A couple with $180,000 each are looking at a $360,000 fund, not two small ones — and the cost is shared.

Your own time is a real cost. Trustee duties take hours, and those hours are not billable to anyone. If you would rather not think about super at all, a low-fee industry fund is a perfectly rational choice and no amount of break-even arithmetic changes that.

The reasons that are actually good

You want to hold something a public fund will not hold. Direct commercial property is the classic case. A business owner can hold their own business premises inside the SMSF and have the business pay market-rate rent to the fund — the rent leaves the business as a deduction and lands in a concessionally taxed environment. This is a genuinely powerful strategy and it is the reason a large share of SMSFs exist.

You want control over the tax timing. In an SMSF you know exactly which parcel of shares was sold and when, so you can manage capital gains around the transition to pension phase. In a pooled fund you are exposed to the pooled outcome.

You want a specific insurance or estate outcome. Binding death benefit nominations, reversionary pensions and control over who receives what are more precise in an SMSF.

You want to combine family balances. Six members means a couple plus adult children can pool capital to buy an asset none of them could buy alone.

The reasons that are usually bad

"I can beat the market." Most people cannot, and an SMSF makes it easier to concentrate risk badly. The most common serious SMSF problem is not fraud — it is a fund holding two or three assets and no diversification at all.

"My mate said the property was a great deal." Property inside super through a limited recourse borrowing arrangement is legal, complex, and heavily marketed by people who are paid on the property, not on your retirement. The borrowing rules are strict, the structure needs a separate bare trust, and a single non-compliant step can be very expensive.

"I want to use the money." You cannot. Early access outside the narrow legislated conditions is illegal access, it is enforced, and the penalties include the entire fund being taxed at the top marginal rate.

What you cannot outsource

Your accountant prepares the accounts. Your auditor audits them. But you are the trustee, and these are yours:

• A written investment strategy that is genuinely considered, reviewed regularly, and addresses diversification, liquidity, risk and whether the fund should hold insurance for members. A one-page template that says "0–100% in everything" does not meet the standard, and auditors are increasingly qualifying on exactly this.
• The sole purpose test. Every decision must be for the purpose of providing retirement benefits. Buying a holiday unit the family uses fails, no matter how the paperwork reads.
• Separation of assets. Fund assets must be held in the fund's name and kept entirely separate from personal and business assets. Mixing them is one of the most common contraventions reported.
• Keeping records. Minutes for investment decisions, trustee declarations, and records retained for the prescribed periods — some for five years, some for ten.
• Signing the annual trustee declaration and understanding that penalties for contraventions apply to you personally, per trustee, and cannot be paid from the fund.

That last point deserves emphasis. Administrative penalties for SMSF contraventions are levied on each individual trustee. A fund with four individual trustees and one contravention can attract four separate penalties. Using a corporate trustee means one penalty instead — which is a large part of why we recommend one.

The practical decision

Ask three questions in order:

1. Is there something specific I want to do that I cannot do in my current fund? If no, stay where you are. Control is only valuable if you intend to use it.
2. Will the combined balance be $300,000 or more within a year or two? If no, the costs will hurt.
3. Am I willing to be a trustee — genuinely, including the reading? If no, this is not the right vehicle, and that is not a failing.

Three yeses and an SMSF is likely worth setting up properly. Anything less and the honest answer is usually that a good low-cost fund will do the same job with less of your weekend.

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General information only. This is not financial product advice and does not consider your objectives, situation or needs. Setting up or winding up an SMSF is a significant decision and should be made with advice specific to you, from an appropriately licensed adviser. Book a free consult to talk through your position.