Should You Start an SMSF?

This is one of the most common questions GCFA receives from Gold Coast clients with growing super balances. The honest answer is: it depends. An SMSF is the right vehicle for some people and completely wrong for others. Here is an objective framework for thinking about it — not a sales pitch for either option.

The Case For an SMSF

An SMSF makes most sense when you have a specific, compelling investment reason that cannot be served through a standard fund. The most common and legitimate reason is holding commercial property inside super — specifically, the commercial premises from which your business operates. An SMSF can purchase that property and lease it to your business at market rates. The rent flows into the super fund as taxable income (at 15%) and the property grows inside a concessionally taxed environment. When you retire, the property can be transferred to pension phase where capital gains on sale may be tax-free. This is a well-established strategy for small business owners and one of the genuinely compelling reasons to establish an SMSF.

The second reasonable case is direct investment control. If you have strong investment views, specific assets you want to hold — a portfolio of direct shares, a particular managed fund not available through standard platforms, physical gold — and you want full control over investment decisions rather than selecting from a fund’s menu, an SMSF provides that control.

The third factor is balance. The fixed costs of running an SMSF — accounting, audit, ATO fees, advice — are largely independent of fund balance. They amount to roughly $2,000 to $5,000 per year for a typical fund. At a $500,000 balance, those costs represent 0.4% to 1% of the fund — competitive with the total cost of many retail funds when advice is included. At $150,000, the same costs represent 1.3% to 3.3% — likely uncompetitive with a well-chosen retail or industry fund.

The Case Against an SMSF

The most common mistake GCFA sees is people establishing an SMSF primarily for reasons of perceived control or status — a general preference for managing their own money — without a specific investment that justifies the additional cost and obligation. Modern retail and industry super funds offer extensive investment choice, reasonable fees and good insurance options. For most clients without a specific property or investment need, a well-chosen standard fund is likely to produce better net outcomes than an SMSF after accounting for costs.

The second common mistake is establishing an SMSF with insufficient balance. Below $200,000, the fixed costs are difficult to justify relative to what a competitive fund charges. Below $150,000, it is almost certainly not cost-effective unless there is a very specific investment justification.

The third issue is engagement. Some people find SMSF trustee obligations burdensome and end up with a fund that is technically their responsibility but practically managed by whoever they can delegate to. The ATO holds trustees personally responsible — delegation to an adviser or accountant does not transfer trustee liability. If you are not prepared to stay genuinely engaged with your fund, an SMSF is probably not the right vehicle.

Insurance Inside an SMSF

One commonly overlooked consideration is insurance. Insurance inside a standard super fund — particularly for life and TPD — is often group cover with simplified underwriting, no medical exclusions for pre-existing conditions (within the default cover), and reasonable pricing due to the group risk pooling. An SMSF cannot access group insurance cover — members must apply for individual insurance on the open market, which involves full underwriting based on current health.

If you have a pre-existing health condition that might result in exclusions or loadings on individual underwriting, your group cover inside a standard fund may be significantly more valuable than it appears. Switching to an SMSF could mean losing that cover and being unable to replace it on equivalent terms. GCFA always reviews insurance implications before recommending an SMSF for clients who currently hold group cover.

Frequently Asked Questions