SMSF expenses are one of the main differences when comparing an SMSF to ordinary retail or industry super funds. As an SMSF is self managed, all of the expenses covered by your regular super fund now need to be managed and paid for by the SMSF trustee.
With a regular super fund, all you see are the annual fees and maybe some administration fees split off. If you have a balance in the ball park of $150 k, you may have annual fees of around $1000. These fees can be broken down into investment related costs, management overhead, compliance, and various other costs.
Most retail or industry super funds won’t give you detail on what your fees are going towards. With an SMSF though, you see everything because you pay for all SMSF expenses with your fund.
Though the management of SMSF expenses is more complex, there are benefits to be had such as tax optimisation, which softens the sting of the additional expenses. Additionally, some SMSF expenses are unique to SMSFs, such as residential property investment fees, so it’s not always an apples to apples comparison when trying to decide if they are more expensive in general.
Setup costs
When you start an SMSF, you will need to pay for establishment services like the creation of your trust deed, the registration of your Trust with the ATO, the creation of a special purpose corporate trustee, advice on your investment structure and goals, bank account creation, and rollover support.
Set up fees are unique to SMSFs, but they can become quite small when you consider the lifetime of the SMSF and you spread the fee across all those years. Most accountants and SMSF administration providers bundle the setup costs into a flat fee and they should tell you exactly what is included in the establishment fee.
Setup costs are payable by the SMSF, however they are not tax deductible under the general deduction provision as they are capital in nature.
Government annual fees
SMSF expenses relating to the government include the ASIC annual fee for corporate trustees and the ATO supervisory levy.
Your SMSF needs to pay these every year. Your provider should inform you how much these are and keep you informed about any increases to the rates.
Both are deductible by the fund under SMSF legislation.
Administration and operating expenses
SMSF expenses can also include management and administration fees. These are often the most common and frequent fees that SMSFs pay. As SMSFs are complicated to run, it is good practice to engage an accountant or administrator to maintain the fund’s compliance. These services are often charged monthly or annually to the SMSF.
Another important administration fee is the mandatory annual audits required for SMSFs under legislation. These may be included in the accounting or administration service fee already.
Additionally, some SMSF expenses come from various day to day operational activities.
Administration and operating expenses are tax deductible under general deduction provisioning.
Investment expenses
On an individual investment or transactional basis, investment expenses are often greater for SMSFs than for ordinary retail or industry super funds due to the smaller scale of operation. Ordinary super funds trade on a massive scale which saves them costs. SMSFs generally have fewer and smaller trades, as a result brokers or facilitators will generally take a higher percentage fee.
The actual investment related expenses your SMSF will incur depends entirely on what assets you are investing in, what your frequency of trading is, and how long you hold your capital investments for. If you see figures quoted like “$4000 a year in investment expenses for SMSFs” take it with a grain of salt. You need context on the amount invested, and the type of investment to decide if the investment expense is disproportionate or not.
Tax deductibility of investment expenses depends on the nature of the investment. Loan interest, brokerage, portfolio management, bank and rebalancing fees are all examples of tax deductible investment expenses for SMSFs. Additionally, storage and insurance expenses are deductible for compliant artwork and collectibles investments.
Tax related expenses
Your SMSF will incur accounting fees every year in preparation for tax lodgement. This is a complicated process, so it’s a good idea to pay an administrator or accountant to manage the SMSF’s tax preparation.
Ask your SMSF administrator or accountant what they are charging for tax related expenses and ensure are reasonable and complete
These SMSF expenses are deductible as costs of managing your tax affairs.
The ATO has a great outline on the expenses that deductible for an SMSF: https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-administration-and-reporting/smsf-deductible-expenses
If you’re up for it, give it a read.
Otherwise, to discuss your SMSF investment queries feel free to:
SMSF expenses management and minimisation
SMSFs expenses can be combated in a variety of ways. One is to have a low frequency strategy, such as buy and hold. This means the investment expense, such as brokerage or duty, is spread across several years, lowering its adjusted annual costs. This makes sense for retirement investments as the horizons are long.
Another is to shop around for a competitively priced administration provider or accountant. It’s important to consider value for money with your SMSF though. If you are paying a small amount, you need to be sure you’re not missing out on any vital components of SMSF administration, otherwise you may find yourself in non-compliance with the ATO. If you are paying a lot for your SMSF management, find out what services are available to you and whether you are taking advantage of all of them. If you aren’t happy with your provider, it’s possible to change and generally the fees to do so are less than the original set up costs.
A popular method is to take advantage of beneficial tax structures. Talk to your SMSF provider or accountant and ask them what they do to ensure your tax is minimised.
An optimistic way is to outperform the retail and industry funds, to such an extent that the investment yield overweighs the additional SMSF expenses incurred, resulting in a superior outcome for the SMSF. This is in no way guaranteed though, and we encourage all SMSF trustees to consider their investment strategies and selections wisely and with due care.
Your aim for SMSF expenses should be to keep them reasonable, not too low and not too high. It’s also important to remember that the primary factor for the long term success of the SMSF is the quality and performance of the investments. So put as much or more effort into them than you do with the management of SMSF expenses.
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