What Is A Self-Managed Super Fund (SMSF)?

A self-managed super fund (SMSF) is like a personal superannuation account, but the difference lies in that you are responsible for managing your investments. You can make contributions and arrange trustee payments to yourself or other people. This blog post will give some tips on getting started with an SMSF. 

A Self-Managed Super Fund (SMSF) is an investment vehicle for retirees and high-net-worth individuals who wish to take control of their superannuation. 

With this type of fund, members can choose their own investments, which means they are not limited to conservative or growth stocks only. 

This freedom comes at the cost of higher fees than other types of funds. Nevertheless, it could be worthwhile if you have enough money to meet your retirement needs without relying on income from investments in a pension fund or elsewhere.

Let’s get started! 

What’s A Self-Managed Super Fund? 

The first question on everyone’s mind: what exactly is a self-managed super fund?

A private superannuation fund that is self-managed by its owners is referred to as a self-managed super fund (SMSF). Your Self-Managed Superannuation Fund (SMSF) can have up to six participants.

One of the most significant distinctions between an SMSF and other kinds of funds is that the members of an SMSF also serve as the fund’s directors or trustees.

This gives SMSF members the ability to manage the fund for their own advantage.

However, the members are also responsible for complying with tax and superannuation rules, and the organisation must be conducted with the sole intention of providing retirement benefits for the members and any dependents of the members.

You are in charge of the fund, and you are responsible for making all of the investment decisions for it.

You will have the opportunity to play a more active part in managing your savings for retirement.

It is essential to be aware that self-managed super funds (SMSFs) are still overseen by the Australian Tax Office and are subject to the same rules and regulations as other types of super funds.

As a result, this is a significant financial choice that requires a lot of both time and expertise to successfully manage.

You have to ask yourself if you can devote enough time to managing an SMSF on your own.

What Steps Must Be Taken To Create A Self-Managed Super Fund?

The money that you put into your self-managed super fund (SMSF) is used for retirement exclusively. You must:

  • Maintain detailed records, and hand them over to an auditor who is approved by the SMSF.
  • Choose trustees either individually or through a corporate trustee.
  • Establish a trust and draw up a trust deed.
  • Register your fund and acquire an ABN
  • Have the knowledge and experience in matters of finance to enable you to make the necessary and appropriate choices
  • Follow a strategy for investments that has a level of risk that is acceptable to you.
  • Prepare yourself to take on the job of a trustee, which involves the responsibility of making decisions that may have repercussions in the judicial system.
  • Prepare to devote some time to investigating potential investing options.
  • Take into consideration purchasing insurance for the members of the fund, such as life cover, income protection, and disability cover.

In addition to this, you should consider developing an exit strategy for your fund. It is in your best interest to think about what takes place when your SMSF comes to an end.

Unexpected things can occur, such as a disagreement between trustees, the passing away of a trustee, or an illness or injury that leaves a trustee unable to perform their duties.

The effects of unexpected occurrences like this can be mitigated with a good exit strategy. The following are some of the strategies at your disposal:

  • Make sure that all of the trustees have access to the records and electronic transaction accounts of the SMSF.
  • Set up the fund with a set of rules that will be activated in the case of an unforeseen occurrence.
  • Make nominations for death benefits that are legally binding (and renew them every three years)
  • It is important to encourage every member to select a power of attorney.

What Are a Few Advantages of SMSFs?

Some of the main benefits of SMSFs include:

1. More leeway to manoeuvre within the tax system

The superannuation fund is often a tax-efficient investment vehicle. In Australia, SMSFs that are in compliance with the relevant superannuation legislation are normally eligible to have the contributions of their members and the earnings of the fund taxed at the concessional rate of 15%. (up to certain limits).

In addition, there is no tax deducted from benefits received after the age of sixty. Earnings on the fund that occur when an SMSF is in pension mode are likewise exempt from taxation.

These tax advantages are available to all types of superannuation accounts, not only SMSFs. However, SMSFs have more leeway to adopt tax techniques revolving around taxable income, capital gains, and franking credits.

2. More direct influence over financial holdings

Trustees of SMSFs have a greater degree of control over the manner in which their money is invested. They are able to make investments in a variety of products, including many of those that are open to public funds as well as those products that are not.

For instance, self-managed super funds can make direct investments in residential real estate, whereas many public funds are limited to making investments through property trusts.

The owners of businesses have the option of using their self-managed super funds (SMSF) to purchase their business premises or other commercial property, which can afterwards be leased to an associated party.

3. Possible reduction in costs for larger sums

A detailed research offered some much-needed clarification after years of heated dispute regarding the actual expense of administering an SMSF.

In the study, the ongoing expenditures for the various balances, as well as the proportion of administrative work that was contracted out to third-party service providers, were broken down. Additionally, both funds with and without direct property interests were analysed in this study.

According to the findings of the report, SMSFs with balances of at least $200,000 generated value that was comparable to that of industrial or retail funds at all levels of administration. On the other hand, SMSFs with more than $500,000 in assets were typically the most cost-effective solution.

There is no such thing as an average fund or average fee because SMSFs are customised to the preferences of their members. As a result, there is no such thing as an average fund. After you have established your SMSF, the recurring fees that you pay will be determined by a variety of criteria, including the following:

  • The amount of people who are members.
  • The total member financial positions
  • By way of illustration, Self-Managed Superannuation Funds (SMSFs) that hold direct property typically have investment costs that are higher than those paid by funds that do not hold direct property.
  • The quantity of administrative work that you contract out to another party.

Using a total super balance of $250,000 as an example, the analysis discovered that the following are the average yearly fees charged by the various types of super funds:

  • $2,728 for industry funds
  • $2,502 for retail funds
  • $2,959 for SMSFs ($10,198 for funds with direct property and $2,720 for those without direct property).

4. Estate planning

One of the many benefits of SMSF funds that is frequently forgotten is that they provide greater flexibility with member death benefits than public funds do.

For instance, a member of an SMSF can make arrangements for:

  • It is possible for death benefits to be handed out to dependents in the form of a pension rather than a lump amount, which will enable the SMSF to keep running.
  • Funds that will be tax-efficiently handed to future generations of beneficiaries
  • assets other than cash, like as property or shares, that will be handed over to a recipient in an unmediated fashion.

5. Asset protection

The assets of SMSF members are shielded from the possibility of future insolvency or any claims made by creditors by providing an efficient method of asset protection. Because of this, they may be particularly appealing to professionals and proprietors of businesses.

According to the Bankruptcy Act, funds held in a superannuation account are excluded from the definition of “property.”

Are There Any Disadvantages to Using an SMSF?

The following are the primary drawbacks of owning an SMSF:

1. The necessary skills, amount of effort, and financial investment

The management of an SMSF can be both time-consuming and expensive, depending on the investments that are selected and the amount of assistance from a professional that is required.

Additionally, there are duties that must be met in order to comply, such as submitting annual financial statements, a tax return, and an independent audit.


Even though many of these responsibilities are contracted out, SMSF trustees are nonetheless responsible for coordinating and monitoring them.

In addition, it is generally advised that one has a solid understanding of the fundamental investment principles. If trustees do not possess this information, it is in their best interest to seek the opinion of an independent financial practitioner. The following recommendation will, of course, come at a price.

2. Increased charges on decreased super balances

The flat costs that are often levied for SMSF services mean that members with low balances are typically altered more than they would be if their funds were placed in public funds. This is because the flat fees are typically charged for SMSF services.

The analysis, for instance, discovered that SMSFs with less than $100,000 were not competitive when compared to industry or retail funds.

SMSFs with balances in the range of $100,000 to $150,000 could only be competitive if they had several members and handled some or all of the administration themselves. Another example of how average fees can be deceiving:

The real costs that you’ll be responsible for will be proportional to the investments and services that you decide to make use of. Additionally, if you intend to build your balance reasonably quickly, you may find it acceptable to pay greater fees in the early years of the account.

3. Increased insurance prices

In most cases, public funds are in a better position than SMSFs to offer their members insurance at more affordable rates. This is due to the fact that they have a big number of members and are therefore able to negotiate cheaper premiums in bulk with insurance providers.

In order to continue to take advantage of the insurance benefits, some members of SMSF choose to keep some of their money in a public fund.

How do Governments Handle Self-Managed Super Funds?

Both the ATO (in a direct capacity) and ASIC are responsible for supervising SMSFs (indirectly).

The ATO is responsible for ensuring that SMSFs fulfil their responsibilities regarding taxation and financial reporting.

The procedure of registration for independent SMSF auditors is overseen and managed by ASIC. As a direct consequence of this, SMSF auditors are an essential component in the process of ensuring overall regulatory compliance. They are obligated to disclose any violations to the trustees of the fund as well as the ATO.

In the event that SMSF trustees fail to comply with the regulations, they risk facing severe fines, such as the following:

  • The loss of the favourable tax advantage enjoyed by their fund
  • Being disqualified from their duties, which means they are no longer allowed to be members of the SMSF and they are also unable to establish a new fund
  • Depending on the gravity of the statutory violation, either monetary penalties or jail time may be imposed.

What Distinguishes An SMSF From Other Super Funds?

The major differences between an SMSF and other super funds are that:

1. Members of SMSFs serve as their own funds’ trustees

This indicates that they are in charge of managing the fund and are legally accountable for ensuring that it complies with applicable tax and superannuation regulations. Trustees of public super funds are often licenced professionals who take on the role of ensuring the fund complies with all applicable laws.

2. SMSFs are only permitted a certain number of members

A SMSF may have as many as six members at a time. Since most SMSFs are handled by a single individual or by a couple, this is not typically a limiting factor.

The number of people who can be members of a super public fund is typically not capped (other than a small APRA fund explained later in this article).

3. SMSF trustees create the investment strategy for their fund, as well as all investment choices, themselves.

Members of public super funds do not typically have the ability to select the precise assets in which their funds are invested. However, they typically have at least some say over the kind and proportion of the investments that make up their portfolio.

4. SMSFs are regulated by the ATO and ASIC

Public funds are regulated by the Australian Prudential Regulation Authority (APRA).

5. Public fund members have access to the Superannuation Complaints Tribunal to resolve disputes

Members of public funds may be eligible for reimbursement through a government programme in the event that trustees engage in unethical behaviour or fraud.

On the other hand, members of an SMSF are responsible for resolving any issues between themselves, resorting to legal channels if necessary.

Self-Managed Super Fund Benefits

There are a variety of benefits that come with managing one’s own retirement account. To begin, if you have the necessary skills and time, managing your own superannuation fund may be a really satisfying and liberating experience.

A self-managed super fund comes with a variety of benefits, some of which are listed below.

1. Control 

In an SMSF, all decision-making authority rests with the members of the fund. This indicates that they will be in charge of determining how the fund will be invested. This can be quite useful in the event that one wishes to take advantage of fresh opportunities that, on the surface, appear to be too hazardous for typical pension funds.

You have the option of investing your money in a diverse variety of assets, such as stocks and bonds, managed funds, fixed interest investments, real estate (both residential and commercial), and more.

2. Making decisions more quickly

The performance of a fund can be significantly impacted by the speed with which choices are made.

Quick choices can be made to either invest in profitable trends or withdraw from unprofitable trends. Both of these are possible.

3. Cheaper prices for larger funds

If you manage your own SMSF, you might be able to enjoy the benefit of reduced recurring costs. SMF is projected to have an operational expense ratio of 0.5 percent, according to estimates.

A Self-Managed Super Fund’s Drawbacks

A self-managed super fund (SMSF) comes with a number of benefits; nevertheless, it also has a number of drawbacks. Before subscribing to an SMSF, it is important to carefully consider the benefits and drawbacks of the strategy.

1. Time-consuming 

It takes a significant amount of time to research possible investment avenues. Because you have to monitor how well your investments are doing, managing the SMSF is an activity that requires your whole attention at all times.

2.  Risks of financial and legal decisions

Setting up and operating an SMSF can be quite a struggle for members of the SMSF who lack prior experience in the areas of finance and taxation.

The inability to make sound decisions can have serious repercussions, both financially and legally, particularly in relation to taxation issues.

3. Not being able to use government compensation programmes

SMSFs are not eligible to receive compensation from the government in the event that money is lost due to a variety of factors, including those that are beyond the trustees’ ability to manage.

4. Fewer opportunities to access dispute resolution

In the event that the directors or trustees of an SMSF are unable to secure adequate legal representation, the fund could suffer as a result. This is due to the limited availability of dispute resolution bodies for SMSFs.

The resolution of disputes through the use of traditional courts will result in increased costs for an SMSF.

What Distinguishes A Super Wrap From An SMSF?

A super wrap is a type of account that combines aspects of both a super public fund and a self-managed super fund (SMSF) into one convenient package. The development of self-managed super fund (SMSF) wrap accounts is the responsibility of public funds.

Members of a super wrap account own the underlying investments, but they are not required to trust the administrator.

Those who have a super wrap do not, as a result, have any responsibility for the continuous administration or legal compliance of the programme.

The APRA, and not the ATO, is the authority that oversees super wrap accounts.

Super wrap account holders typically have access to wholesale and institutional investment products, which are not available to SMSFs. The majority of their investments are typically held in cash, managed funds, term deposits, and shares of publicly traded companies.

Persons who have a super wrap do not have access to the same breadth of prospective investment assets that people who have an SMSF do, including the ability to directly invest in residential or commercial property as well as collectables.

What Distinguishes An SMSF From A Small APRA Fund?

Super funds that are governed by APRA but have less than seven members and a licenced trustee are considered to be small APRA funds (unlike SMSFs where fund members are the trustees).

Large financial institutions typically provide minor APRA funds and hold an Australian Financial Services License issued by the Australian Securities and Investments Commission (ASIC).

Good to know

After the adoption of the Treasury Laws Amendment (Self Managed Superannuation Funds) 2020 Bill, the maximum number of members allowed in a small APRA fund will increase from four to six beginning July 1, 2021. This increase follows the same pattern as that of SMSFs.

Without having to take on the role of trustee, investors in a small APRA fund have access to a greater degree of control over their retirement savings assets than they would have with a traditional public fund.


In contrast to SMSFs, small APRA funds are eligible to file complaints with the Superannuation Complaints Tribunal in the event that member disagreements arise.

The Value Of Continuous Financial Advice

Sound financial counsel is required for access to SMSFs. In light of this, prior to settling on the idea of establishing one, it is strongly suggested that you consult the services of a financial advisor.

The dangers that are associated with managing an SMSF will be explained by the advisor.

After an SMSF has been established, a financial planner may be able to provide assistance in the administration of investment decisions made by the fund.

However, it is essential to keep in mind that a financial advisor is just tasked with making recommendations, and it is the trustees’ obligation to put those recommendations into action. For the following reasons, it is essential to make use of the services of an expert financial adviser:

1. Improved investment research

Without the guidance of a financial advisor, members of a self-managed super fund (SMSF) may be missing out on investment opportunities. The advisor may also help you narrow down the many investment opportunities to the one that is most suited to your needs and preferences.

2. Avoiding financial & legal pitfalls

A financial advisor can help a member of a self-managed super fund (SMSF) who lacks the necessary financial or legal expertise to mitigate risks. In addition to taxation, membership, financial compliance, and so forth, the adviser can offer help on a wide range of other issues.

3. Simpler day-to-day management

Delegating authority to make transactions on your behalf to your financial advisor is a viable option.

Members of the SMSF may feel less pressure to handle day-to-day management tasks and have a better opportunity to keep tabs on all of their investments.

It is important to think carefully before choosing to transfer your superannuation to an SMSF

It is strongly suggested that you consult with a knowledgeable financial planner before switching over to an SMSF because this transition can be complex. You will be able to evaluate the benefits and drawbacks of establishing an SMSF with their assistance and determine whether or not doing so is in your best interests.

The Bottom Line

A self-managed super fund, often known as an SMSF, is a private superannuation fund that is managed by its members themselves. This type of fund gives members a greater degree of control over the manner in which their

Nevertheless, establishing a self-managed superannuation fund (SMSF) is a significant decision that comes with continuing legal compliance responsibilities. These tasks can be time-consuming and expensive.

In the end, whether or not a self-managed super fund (SMSF) is a good option for you relies on conditions such as the following:

  • Your current super balance
  • How much do you know about making investments and how much free time do you have to manage your fund?
  • Your prefered categories of monetary holdings to put your money into.
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