It’s a common question that we are commonly asked: how much money do you really need to start an SMSF?
Minimum Recommended Balance
While there’s no legal minimum balance required to establish an SMSF, the Australian Securities and Investments Commission (ASIC) and the Australian Taxation Office (ATO) recommend a starting balance of at least $200,000. This is because the administrative and compliance costs of an SMSF can outweigh the benefits if the fund has less than this.
Why $200,000?
According to ASIC’s guidance, balances below this threshold often lead to lower net returns after accounting for the cost of running the fund. As a result, SMSFs with smaller balances may not be as competitive compared to retail or industry super funds.
There is an exception to this rule and that is if you wish to buy a property within your SMSF. Suppose, for example, that you have a balance of $150,000 in your self managed super fund. With the assistance of your SMSF accountant Melbourne, you maybe able to approach a bank and borrow an additional $350,000 to purchase a $500,000 property (not allowing for stamp duty and other purchase costs). Please do not hesitate to contact Nobel Thomas if you have any questions in relation to property purchases within your SMSF.
SMSF Setup Costs
Here’s a breakdown of typical costs involved in setting up and maintaining a Self Managed Super Fund:
- Establishment Costs (allow for $1,500 to $3,000 which includes)
- SMSF deed and legal documents:
- Company registration (if using a company to act as trustee):
- ABN registration, TFN registration, rollover assistance and bank account setup
Note that using a company to act as trustee for the super fund is more expensive upfront but offers better asset protection and flexibility.
- Ongoing Annual Costs
- Accounting and tax return preparation. Generally falls within the $1,000 – $3,000 range depending on the number and type of investments in your SMSF.
- Annual independent audit: Allow for $300 – $600
- ATO supervisory levy: $259
- Investment costs (e.g., brokerage, platform fees): Varies depending on your strategy
Other Considerations
Trustee Responsibilities
As an SMSF trustee, you’re responsible for ensuring compliance with superannuation and tax laws. Don’t be scared by this requirement, an SMSF accountant Melbourne like Nobel Thomas can guide and support you along the way.
Insurance
Retail and industry super funds typically include life and TPD insurance. With an SMSF, you’ll need to arrange your own policies, and premiums must be paid through the fund. An SMSF accountant Melbourne, like Nobel Thomas, can assist you to obtain adequate insurance coverage for members of the fund.
When Does It Make Sense to Start an SMSF?
An SMSF could be worth considering if:
- You have a combined (with your spouse) super balance of $200,000 or more
- Or you would like to purchase a property with a balance of less than $200,000 (and wish to use borrowed money for the balance)
- You want direct control over your investments (e.g., property, shares, crypto)
- You have access to professional advice from an SMSF accountant Melbourne to manage compliance and strategy and help you with your trustee duties.
Final Thoughts
Setting up an Self Managed Super Fund can provide some fantastic tax benefits and help you plan for your retirement. While the entry cost has become more affordable in recent years, it is important to use the services of an SMSF accountant Melbourne to help you along the journey.
