Self-managed superannuation funds (SMSFs) are popular among Australian investors looking for more control and flexibility over their retirement savings.
Unlike traditional industry funds, SMSFs allow individuals to tailor their investments to meet their needs, giving them more control over their retirement planning and potentially benefiting from valuable tax concessions.
However, with this added freedom comes a significant increase in responsibility, as self-managed super fund trustees must comply with complex legal and financial regulations. As a result, anyone considering setting up an SMSF should be well-educated about all the requirements involved.
So, let’s help you fill in any knowledge gaps in the SMSF setup process.
Step 1: Establish Your Self-Managed Super Fund Structure
When setting up a Self-Managed Super Fund (SMSF), you need to make two important decisions: the member structure and the trustee structure.
The member structure can be either a Single Member Fund or a Multiple Member Fund, while the trustee structure can be either Individual Trustees or a Corporate Trustee.
Single Member Fund vs. Multiple Member Fund
The main difference between a Single Member Fund and a Multiple Member Fund is the number of members allowed in the SMSF:
| Single Member Fund | Multiple Member Fund |
| Only one member is allowed in the SMSF | The SMSF can have between two to six fund members |
| The member must be appointed as a trustee or director | Each member must be appointed as a trustee or director |
| If using individual trustees, you must appoint at least two trustees, with one being the fund member and the other not being the member’s employee (unless related) | A member can’t be an employee of another member (unless related) |
Individual Trustees vs. Corporate Trustee
Once you have decided on the member structure, you need to choose between individual trustees or a corporate trustee for your SMSF. The requirements for each structure depend on whether you have a Single Member Fund or a Multiple Member Fund.
| Trustee Structure | Single Member Fund | Multiple Member Fund |
| Individual Trustee | – You must appoint at least two trustees- One trustee must be the fund member- The other trustee must not be the member’s employee (unless related) | – Each member must be appointed as a trustee- A member can’t be an employee of another member (unless related) |
| Corporate Trustee | – The fund can have one or two directors- The member must be one of the directors- If there are two directors, the other director can’t be the member’s employee (unless related) | – The fund can have two to six members- Each member must be appointed as a director- A member can’t be an employee of another member (unless related) |
Example:
Mr and Mrs Lee want to set up an SMSF with just the two of them as members. They can choose between a single-member or a multiple-member fund structure and between individual trustees and a corporate trustee.
If they choose a single-member SMSF structure, then Mr Lee will be the sole member of the fund, and they will need to appoint at least one other person to act as a trustee with him. If they opt for individual trustees, they could nominate Mrs Lee as the second trustee.
On the other hand, if they choose a corporate trustee structure, they could establish a company called Lee Pty Ltd, which will act as the fund’s trustee. In this case, Mr and Mrs Lee could be appointed directors of Lee Pty Ltd, with the company responsible for managing the fund’s assets.
Ultimately, the choice between the two structures will depend on your circumstances, such as your goals for the SMSF and the level of responsibility you want to take on. There are also differences in the superannuation laws, governing rules, ongoing costs and reporting, so it’s important to seek advice from SMSF professionals to make an informed decision.
Step 2: Appoint Trustees
After deciding on your SMSF’s structure and whether you will have individual or corporate trustees, the next step is to appoint trustees.
While you may think you can appoint any ordinary, prudent person, not everyone is eligible to become a trustee of an SMSF. They must meet specific criteria, such as being over 18, not being under a legal disability or a disqualified person, and having no outstanding tax or super affairs.
Once you have determined your eligibility, all the members must understand their roles and responsibilities under the law.
The ATO offers various courses to help with this understanding.
After fully comprehending your roles, responsibilities, and obligations, you must consent to being appointed as a trustee in writing. Every new trustee must sign the trustee declaration form within 21 days of consenting to become a trustee, indicating that they understand their duties and responsibilities.
Step 3: Create an SMSF Trust Deed
Once you have appointed your SMSF trustee, the next step is to create a trust deed for your SMSF.
The trust deed is a legal document that sets out the rules and regulations of the SMSF and is the foundation of your fund’s compliance. The trust deed should include information such as:
- the fund’s investment strategy
- how trustees are appointed and removed
- how benefits are paid, and
- how you can wind up the fund.
The trust deed must comply with superannuation law and be tailored to suit the fund’s specific needs and objectives. You should seek professional advice from a lawyer or an SMSF accountant to ensure it is comprehensive and legally binding.
Another thing to note is that the trust deed isn’t necessarily a static document. You should regularly review and update it as necessary to reflect any changes to the law, your fund’s circumstances or the best interests of those involved.
Once you have created the trust deed, all the trustees must sign and date it, after which it should be filed along with all the fund’s records.
Step 4: Register Your SMSF
Once you have set up your own SMSF, appointed trustees, and created a trust deed, the next step is registering your SMSF with the Australian Taxation Office (ATO). You must register your SMSF with the ATO within 60 days of its establishment.
Registering an SMSF requires an Australian Business Number (ABN) and Tax File Number (TFN). An ABN is a unique 11-digit number that the Australian Business Register (ABR) issues to identify your SMSF to the government and other entities, while a TFN is a unique number that the ATO issues to identify your SMSF for tax purposes.
You can apply for your ABN and TFN by completing an ABN application form. You can do this through the ABR website or seek assistance from a registered tax agent or accountant.
Step 5: Open a Bank Account for Your SMSF
After registering your SMSF with the ATO, the next step is to open a separate bank account for your fund. This will keep your SMSF’s assets separate from your personal assets.
When choosing bank accounts, you must look for one that meets the specific needs of your SMSF. Some important factors to consider include the fees associated with the account, the interest rate, and the availability of online banking services.
Additionally, you need to ensure that the bank account is set up in the name of your SMSF, with the fund’s ABN and TFN attached. You must provide these details to the bank when opening the account.
Once the account is set up, ensure that you pay all contributions, member benefits and expenses related to your SMSF from this account.
Keeping accurate records of all transactions is essential to managing your SMSF effectively.
Step 6: Get an Electronic Service Address
Obtaining an Electronic Service Address (ESA) is an essential step in the SMSF setup process. It enables your fund to accept contributions from your employer using the government’s SuperStream system.
An ESA is essentially an electronic address that allows information to be exchanged securely between different service providers. To obtain an ESA, you can choose from a list of government-approved providers, including some banks and superannuation administration companies, and follow their registration process.
Once you obtain your ESA, you can provide it to your employer or their clearing house to receive contributions.
Step 7: Decide Your Investment Strategy
To manage your self-managed super fund effectively, you need a clear investment strategy that aligns with your retirement goals. Your strategy should be based on the level of risk you are willing to take, your investment goals, and the diversification of your investments.
Your investment strategy must also meet the sole purpose test. This test requires you to make investment decisions solely to provide fund members with retirement benefits. You must ensure that any major financial decision for your SMSF benefits your retirement and is not made for any other purpose.
To develop an investment strategy, get professional advice from a financial planner or licensed financial advisor with experience in SMSFs. They can help you determine the appropriate asset allocation for your fund and assist you in selecting suitable investments that align with your investment objectives and risk tolerance.
You should also regularly review your investment strategy to ensure it remains appropriate for your retirement goals and personal circumstances.
Key Takeaways
- Setting up an SMSF requires careful planning and attention to detail. We’ve outlined the basic steps involved in setting up an SMSF, but it’s important to remember that each step has various compliance obligations that must be met to ensure that your fund is validly set up.
- Attempting to do it alone can be overwhelming, so it’s a good idea to seek the help of SMSF experts.
- At KNS Accountants and Business Advisors, we have a team of experienced SMSF specialists who can assist you with all aspects of setting up and managing your SMSF. Whether you need help with the initial setup, ongoing compliance requirements we can provide tailored solutions to suit your needs.
- Contact us today to find out how we can help your SMSF.
Disclaimer:
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to property buyers and investors. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal, tax or investment advice. You should, where necessary, seek your own advice for any legal, tax or investment issues raised in your affairs.
