Accounting & AuditAverage SMSF Costs and Fees - How much does it cost to run an SMSF?

June 26, 2020by Grow SMSF0

What are the average SMSF costs and fees? SMSF operating, administration and audit costs are a key consideration when you setup an SMSF.

New data has been released from the ATO on the average SMSF costs and fees.  This new data is more detailed than previous high level statistics and provides reliably insight into SMSF administration, accounting and audit fees and helps answer the question: How much money do you need to set up a self-managed super fund?

What are the average SMSF costs and fees per annum?

 

Based on the ATOs SMSF: A statistical overview 2017-18 the average SMSF costs per year are $3,934. This is based on a median (mid-point) of operating expenses which an SMSF would incur including SMSF auditor fees, SMSF accounting fees, SMSF administration costs, ATO SMSF Supervisory Levy and other deductions relating to the annual running of an SMSF.

Median and average fees and costs per annum

The following table provides a further breakdown and comparison of SMSF auditor fees, SMSF accounting and admin fees (“Management and Admin Expenses”) and other deductible operating expenses for the 2017-2018 financial year:

Median

Average

SMSF Auditor Fee

$        550

$        679

Management and Admin Expenses

$    2,808

$    4,503

Supervisory Levy

$        259

$        259

Other Deductions

$        317

$    2,512

Total expenses

$    3,934

$    7,953

 

It’s also important to understand that the above does not include the following SMSF fees:

  • Insurance premiums (life, total and permanent disability insurances etc)
  • Investment expenses (investment administration and management expenses)
  • Interest expenses (from limited recourse borrowing arrangements)

Although we assume that the majority of the ‘Management and Admin Expenses’ for an SMSF would be accounting fees and SMSF administration fees, there is a possibility financial advice and investment administration fees are intermingled with these amounts.

ATO annual statistics are typically delayed by close to two years as they need to wait until as many SMSFs lodge their annual tax returns as possible.  The above figures are based on data reported from 470,415 self-managed super funds (the total population of SMSFs as at 30 June 2018 was 581,853).

 

Do larger funds pay higher SMSF accounting fees?

Based on the statistics from the ATO, Yes. When SMSFs have more than $2 million in assets they typically higher fees compared to SMSFs with lower balances.

The median SMSF costs and fees (based on operating expenses) for an SMSF with more than $2 million in assets for the 2018 financial year was: $6,225.

This figure is 58% higher than the median SMSF operational costs across all funds.

Research conducted by BGL and BStar also found that average SMSF accounting and administration fees increased as the balance of the SMSF increased.

The average SMSF administration fees for the 2017 financial year based on the balance of the fund according to accounting software provider BGL are as follows:

Average-SMSF-Accounting-Fees-BGL-BStar-Research-Insights-2018

Balance of SMSFMedian SMSF Administration Fees
$0 – $200k$1,887.00
$200k – $500K$2,506.00
$500k – $1m$2,925.00
$1m – $1.5m$3,376.00
$1.5m – $3.0m$4,002.00
$3m +$5,432.00
Total (Median) of all SMSFs$2,915.00

The total sample size is 58,624 SMSF annual returns. SMSF administration fees exclude SMSF audit costs.

Average cost of SMSF administration

The above fees for not include SMSF audit costs.  The average (median) SMSF accounting fees according to this research for the 2017 financial year are $2,915 for SMSF administration (accounting) and $550 for audit.

The total average SMSF fees therefore are $3,465 which is very close to the 2018 figures from the ATO for 2018 which come is at $3,358 ($2,808 SMSF administration fees and $550 SMSF audit fees).

 

How much money do you need to set up a self managed super fund?

The most common method to answer this question is to look at the average SMSF costs and fees per year and compare to another type of superannuation fund such as a retail or industry super fund account.

If for example your retail or industry super fund costs you 1.00% per annum for the administration and management cost (excluding insurance premiums), then based on the average SMSF fees from the ATO an SMSF with a starting balance of $393,400 would on average be a reasonable amount of money to set up a self managed super fund.

However, it’s not quite as simple as that.  If you plan to outsource the investment management of an SMSF to a financial planner or investment adviser, the SMSF costs and fees will increase, therefore to make the self-managed super fund costs similar to APRA regulated funds, you would need significantly more.

ASIC previously reported that SMSFs with balances under $500,000 had lower returns after expenses and tax and are often uncompetitive compared to the larger APRA-regulated funds.  There is an element of truth to this, however average fees and average balances often hide other variables.

Analysis by the SMSF Association shows that the average amount of money to set up an SMSF in the 2018 financial year was $408,750 with a median amount of $268,664.

SMSF setup costs - average establishment balances 2018

It’s important to understand that the closing balance of an newly setup SMSF at the end of the financial year is influenced by a number of factors including:

  • How many members the SMSF has;
  • Whether contributions are made before or after 30 June;
  • Whether there are rollovers still to be transferred to the SMSF

It’s common practice for an SMSF to be set up and a small amount of contributions made by the members prior to 30 June (for example where tax deductible contributions are made to offset a capital gain) and then rollovers of their existing super fund accounts occur after 30 June in the following financial year.

We answer the question on the SMSF setup minimum amount in the following article: How much is needed to set up an SMSF?

 

How much does it cost to run an SMSF?

ASIC completed a survey of a number of SMSF trustees in 2017 and released a report titled: Member experiences with self-managed superannuation funds

This report asked the following question:

“And when it comes to the money required for setting up and running an SMSF, either the costs you have paid, or costs you have paid to someone else to help with your SMSF, such as an accountant or financial adviser, [how much] has it cost?”

Based on 457 SMSF trustees surveyed, the responses were:

  • Less than expected: 9%
  • About as much as expected: 59%
  • More than expected: 32%

Costs of setting up an running an SMSF ASIC

The survey from ASIC also found that there was a significant difference between what people expected to pay with the setup and ongoing SMSF accounting fees compared to what they ended up paying.

Prior to setting up an SMSF people expected to pay an average of $1,000 to set up an SMSF and only $680 per year for the ongoing SMSF administration and advice costs associated with running a self-managed super fund.

The reality is that the average SMSF setup fee (with a trustee company) is more likely to be $1500 and the ongoing fees close to 5 times higher at $3,358 – and that excludes any advice fees.

 

SMSF audit fees

The average SMSF audit cost based on the ATOs 2017-18 statistics is $550.  This average SMSF audit fee has not changed in in a number of years, despite the ATO increasing scrutiny of SMSF auditors including reviewing their competence and independence.

As the size of an SMSF increases, the independent audit fees also increase.

Size of SMSFAverage SMSF Audit Fee
< $50k$450
$50k – $100k$473
$100k – $200k$495
$200k – $500k$548
$500k – $1m$550
$1m – $2m$574
> $2m$659
Total (Median) of all SMSFs$550

Source: Self-managed super funds: A statistical overview 2017-18 – Table 25 – ATO

The total sample size is 347,739 SMSF annual returns lodged.

Interestingly, according to the ATO, the median SMSF fee has remained unchanged at $550 for the preceding five financial years.

It will be interesting to see how SMSF audit fees will change in response to the added pressures and scrutiny from both the ATO and disgruntled SMSF trustees who have successfully sued the auditor of their self-managed super fund.

 

Does the SMSF auditor fee need to be included on the annual return?

Something interesting regarding the ATO data on average SMSF fees is that of all the funds their data was based on (assume 470,415 based on number of SMSFs that paid the annual supervisory levy) that only 347,739 including an SMSF auditor fee in the relevant label in the SMSF annual return.

This means approximately one in four SMSF accountants or administrators do not include the independent audit fee separately in the tax return. It’s likely that the SMSF audit cost is included as part of a fixed-fee SMSF administration package in these cases.

It is not compulsory for this expense to be separately recorded, however it is an important piece of statistical information.

 

SMSF setup costs

There are a number of costs involved in the setup of an SMSF.  These SMSF establishment fees include:

  • Financial advice fees on the suitability of an SMSF (Statement of Advice)
  • SMSF trust deed cost
  • ASIC company registration fee
  • Cost of associated professional fees (accountant / adviser assistance)

Although individuals are not obligated to get financial advice from a licensed financial adviser, it’s recommended to ensure the SMSF is in the best interests of the person setting up the fund.

 

How much does it cost to set up a SMSF?

The Future of SMSF Survey undertaken by Smarter SMSF looked at average SMSF setup costs in their 2018 report.

The average SMSF setup costs were found to be $1,050 for a generalist accountant or $935 for a specialist SMSF provider.

This amount includes the documentation including SMSF trust deed but does not include the cost of the trustee company registration with ASIC which is $495 (increasing to $506 from 1 July 2020) and associated legal document costs for the constitution.

This means the average SMSF setup cost for the establishment of a self-managed superannuation fund with a company trustee would be circa $1500.

SMSFs don’t necessarily need a special purpose trustee company for a new SMSF setup, however it’s more robust and the best choice for most new SMSFs.

 

Free SMSF setup

Setup fees for an SMSF with individual trustees are typically lower, and can be anywhere from $0 (free setup) or up to $900 with an average around $500.

It’s important to understand what you get as many low cost providers basically provide a documentation ‘kit’ for a truly DIY SMSF set up.  Most providers who charge a fee will often undertake more of the work including explaining all the relevant documentation and minutes, completing the ABN and TFN applications for the SMSF as well as ensuring the trust deed document for your new SMSF is up to date for all laws, compliant and of high quality.

 

Are SMSF setup costs tax deductible?

No.  The costs to setup an SMSF are not tax deductible and this has been confirmed by the ATO. The SMSF setup costs including legal expenses, document expenses, accounting fees and the fees to register a trustee company with ASIC are all capital in nature and a deduction cannot be claimed for these establishment expenses.

Some accountants may record the SMSF setup costs in accounts of the SMSF and amortise (write-off) over 5 years however this is unnecessary.  SMSF establishment fees should be treated as a tax deductible expense in the accounts.

 

Who pays SMSF setup costs?

The individuals who will be the members of the SMSF typically pay the SMSF setup costs.

If the accountant or provider who completes the SMSF setup issues an invoice in the name of the new self-managed super fund, it’s possible for the fund to reimburse the members who paid the establishment costs once the SMSF has money in it’s bank account from contributions or rollovers.  Setup costs if paid by a member of an SMSF are not tax deductible to the individual (or to the SMSF itself – see above).

To learn more about how to set up an SMSF, you can visit our SMSF setup page here.

How much does it cost to wind up a SMSF?

SMSF windup fees typically will be between $500 and $1000 in addition to the regular SMSF administration, accounting and audit fees for the financial year the SMSF operates.

When it comes time to wind up and close an SMSF, the costs also need to be taken into consideration.

According to the ATO there are a number key tasks that need to be carried out to wind up an SMSF including:

Some of these items are in addition to the normal accounts and audit.

Although an SMSF may sell down it’s investments to cash and then transfer member benefits to another superannuation fund during the year, it’s likely the end of year accounts and audit do not happen until sometimes many months afterwards.

 

Fees to wind up and close an SMSF

Certain fees such as the SMSF audit are typically fixed and flat, and often do not change or reduce purely because the balance of the SMSF is nil or low at the end of the financial year.

Also there are a number of additional documents including trustee minutes and written notifications to the ATO which must be completed which take an SMSF administration provider additional time.

Similarly, for the members benefits to be transferred to another super fund, interim financial statements and member statements must be prepared to enable the rollover or transfer form to be generated as this is required by the super fund receiving the members monies.

Another important consideration is preparing the final SMSF annual tax return.  The ATO typically doesn’t release the specifications to the accounting software companies until later in the financial year, meaning the electronic SMSF tax return cannot be completed until very close to, or after the end of the financial year.

This means the accountant or SMSF provider often has to either leave the fund on their accounting platform (and incur additional fees) or manually complete a paper-based SMSF tax return for the ATO to process.

 

Closing an SMSF trustee company – voluntary de-registration cost

Where an SMSF has a company trustee, it is likely the company needs to complete a voluntary de-registration.  This will incur an additional fee from ASIC as well as the professional fees to complete the necessary forms. The voluntary company de-registration fee (from 1 July 2020) is $42.

Timing of an SMSF windup is important. When an SMSF has received distributions from managed funds and ETFs during the financial year, typically there will be tax credits the SMSF is entitled to (which will either offset and reduce tax payable or be refundable to the SMSF in the case of franking credits).

An SMSF may have to remain open an operating with a small balance (essentially a ‘zombie SMSF’) to enable the franking credits to be refunded, and the final rollover to be paid on behalf of the members.  If these credits are not refunded until after the annual tax statements are issued un August or September, the SMSF will definitely need to wait until the next financial year to complete it’s final return.

The additional cost and time taken to wind up an SMSF may be a source of frustration to SMSF trustees and their advisers, but it’s a necessary evil when it comes to winding up a self-managed superannuation fund.

Summary of average SMSF costs and fees

There is a lot of variety across all types of SMSF related fees including accounting, administration and audit.

Low or cheap SMSF administration fees often mean more restrictive or low touch offerings, but conversely higher SMSF fees don’t always mean a higher level of service.

SMSFs provide choice which enables trustees of self-managed super funds to choose a provider that suits their needs at the price point they are comfortable with.

The one recommendation we have when it comes to average SMSF costs and fees is to find an SMSF provider who is NOT AVERAGE!

 

Related articles:

Interested in setting up an SMSF?

The following pages provides more information on how you can establish an SMSF: How to set up an SMSF

If you have any questions please contact Grow SMSF.

 

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