SMSF Operating Expenses

One of the more significant statistics from the ATO overview was that for the 2013-14 year, the estimated average operating expense ratio of SMSFs increased to 1.06% (compared with 0.65% over the three years to 2012) and average value of $11,200 (compared with $5,900 in 2010).  SMSFs in pension phase had higher total average operating expenses than funds solely in accumulation phase.

However, these headline figures need to be considered with caution.  First, from 2013 onwards, the SMSF annual return was modified to collect non-deductible expenses (particularly expenses incurred during pension phase).  Secondly, expenses include interest expenses which may more properly be considered an investment expense than an administrative expense, as such interest is incurred by reason of limited recourse borrowing arrangements.  

The overview clearly showed that the estimated operating expense ratio of SMSFs declined in direct proportion to the asset size of the fund; that SMSFs offer economies of scale in relation to operating expenses.  To quote the overview “In 2014, SMSFs with $50,000 or less in assets had an average operating expense ratio of 12.1%.  This compares to SMSFs with more than $500,000 in assets which had an average of less than 1.4%”.

The overview also indicated in respect of 2014, that SMSFs solely in accumulation phase had an estimated operating expense of about $10,300 while those in pension phase averaged $12,100.  The reason for the difference is that SMSFs in pension phase incur expenses not incurred by SMSFs solely in accumulation phase (such as actuarial certificates and possibly greater advice fees given the greater need to monitor cash flow while in pension phase.)  However, on the other side, the interest expenses of SMSFs in pension phase were materially less than SMSFs solely in accumulation phase (possibly reflecting the fact that limited recourse borrowing arrangements tend to be undertaken while in accumulation phase).