A Simple Guide to Self Managed Super Funds

Written by:

Suzi O'Shea


October 7, 2020

Last updated

August 12, 2022

Reading time

5 minutes

Suzi O'Shea

Suzi O’Shea is a contributing writer for Oiyo. She has a Bachelor of Arts, Communications with honours from Southern Cross University. Suzi has worked in media for over 15 years and has been published in several online publications as well as print magazines. She has worked as a freelance writer, speaker, and change management facilitator.

To DIY or not to DIY, that’s the question

It can sound enticing to take control of your finances, but there is an awful lot of work, research, and responsibility that comes with setting up and maintaining a self managed super fund. So let’s take a look at some of the most commonly asked questions about self managed super funds and answer them for you.

What are self managed super funds?

Superannuation is a nest egg of savings that supports you through retirement. In Australia, your employer has a legal obligation to contribute to your super fund as a part of your remuneration package. While there are a range of APRA-regulated super funds available that will manage your superannuation for you, there is a growing trend towards self managed super funds.

Like a retail super fund, a self managed super fund (SMSF) focuses on investing funds to provide retirement benefits. Unlike commercial funds, who can have thousands of members, an SMSF can have up to four members, who are often the fund’s trustees. These members decide on and manage investments, and are responsible for ensuring compliance with super and tax laws.

How much does it cost?

While we assume a DIY approach is going to save money, an ASIC report from June 2018 shows that when it comes to SMSFs, this isn’t necessarily true.

32% of SMSF members surveyed noted that the process was more expensive than expected.

And according to the ATO, the more money in the fund, the more cost effective it is to run.

Fund size Operating expense ratio Total expense ratio
$1 to $50,000 8.2% 15.4%
$50,000 to $100,000 3.4% 7.3%
$100,000 to $200,000 2.2% 6.7%
$200,000 to $500,000 1.3% 3.7%
$500,000 to $1 million 0.8% 1.7%
$1 million to $2 million 0.5% 1.0%
$2 million 0.3% 0.7%

Source: Super Guide

In the June 2020 statistical overview from the ATO,the average running cost for simple SMSFs was between $3,923 and $7,700. While some paid support (such as an Independent SMSF Auditor) is non-negotiable, there are various supports available that will impact the cost of running your SMSF.

Is it worth it?

The cost effectiveness of self managed super funds depend on a fund’s balance. According to ASIC, “On average, SMSFs with balances below $500,000 have lower returns after expenses and tax, and will often be uncompetitive, compared to APRA-regulated funds.”

Where do I start?

Because of the financial and legal repercussions, it is vital to talk to your financial advisor before setting up a SMSF. Professional support throughout the process is highly recommended, as setting up your SMSF requires a number of steps including appointing trustees, the creation of the trust and the Trust Deed, registration, and the preparation of an exit strategy. Taking time to research now will save a lot of stress later on.

Can you buy a property with a SMSF?

While you cannot use your SMSF to buy your new home, a SMSF can be used to purchase investment properties. However, the use of these properties is closely monitored by the ATO to ensure arm’s length rules are upheld. These rules prevent SMSFs renting or selling properties below market value to friends or family, ensuring the focus of the SMSF remains on retirement preparation for members.

Can I withdraw money from a SMSF?

Just like retail funds, there are restrictions around accessing money from your SMSF. You cannot simply remove and return money to the SMSF at will, and any amounts withdrawn before retirement are taxed. Beyond compassionate grounds or extenuating circumstances, Lump Sum Withdrawals are only available once you have turned 65 (or are aged between preservation age and 64) and are ‘retired’.

As the trustee of a SMSF, it might be tempting to relax the rules. Yet, the consequences can be serious, including penalties of up to $504,000 and five years jail!

Can I transfer money to a SMSF?

When you move from a retail super fund to a SMSF, you can request your super be rolled over into the new fund. You can also request to transfer or rollover some, or all, of their account to a different fund, or in certain circumstances, another member’s account. However, all transfers are at the discretion of the fund’s trustee(s).

What is the start-up cost of a SMSF?

According to ASIC surveys, the estimated costs of setting up an SMSF are between $916 to $2,035, depending on how much professional support is required. As most SMSFs are not seen as conducting a business, these start-up costs typically cannot be claimed as expense deductions.

What are the benefits of self managed super funds?

Control over your finances is seen as the biggest benefit to an SMSF, with the ability to choose investments and their timing to potentially improve profits. Smaller funds allow members to pay only for the services they use, rather than more general costs. SMSFs can also be more effectively utilised in estate planning, including the transfer of assets to family members.

Do you pay less tax on a SMSF?

For funds complying with laws and regulations, SMSF income is taxed at a concessional rate of 15%. However, if you are deemed non-compliant, that tax rate increases to the highest marginal tax rate.

Can I access my SMSF to pay off debt?

Accessing superannuation is always a last resort, and there are a range of requirements to withdraw super before retirement. Working with a superannuation specialist will help you identify whether you qualify for early access. Generally, though, to withdraw part of your super under severe financial hardship grounds, you must:

  • Have received continuous, eligible government income support payments for 26 weeks
  • Be unable to meet reasonable, immediate living expenses

While those over 60 will not be taxed for this withdrawal, for everyone else tax rates are typically between 17% and 22%.

What are the risks involved?

There are a range of risks associated with SMSFs, and careful risk analysis is vital. While risks are dependent on a range of factors, the most common risks include:

  • There are fewer protections available in cases of theft or fraud, including lack of access to the Superannuation Complaints Tribunal
  • As a member or trustee, you are legally responsible for decisions, actions and inactions within the SMSF, regardless of your involvement in the decision making process
  • Job loss does not change your responsibilities towards the management of the fund
  • Changes in relationships, including break-ups, illnesses or death, can have a serious impact upon your superannuation

For more information, check out our comprehensive guide on superannuation here.

Read up on superannuation!

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Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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