7 steps to setting up an SMSF

It can be hard to know where to start or what’s ahead when you embark on setting up your own self-managed super fund (SMSF).

You might like the idea of having greater control over your retirement savings, but there will be other things to consider, such as whether you have time to manage an SMSF and if you’ll need assistance.

If it’s something you’ve been thinking about, we look at some of the steps involved, which include:

1. Consider starting with professional advice

2. Determine your fund’s structure

3. Establish a trust deed

4. Register your SMSF

5. Set up your fund’s bank account

6. Create an investment strategy

7. Stay up-to-date.

1. Consider starting with professional advice

An SMSF won’t be for everyone. You’ll need to consider your own circumstances and goals, and this is where engaging with an SMSF specialist, such as your financial adviser and or accountant could help.

It’s also important to be aware that an SMSF comes with a lot of responsibility, such as reporting, tax and administrative obligations, which you’ll need to be across to ensure you’re meeting regulations.

Speaking to a professional could help you weigh up the pros and cons, and if you do go ahead, they may be able to provide ongoing guidance around how to set up and run your fund effectively.

2. Determine your fund’s structure

An SMSF can have up to four members where these individuals, or a company, act as the fund’s trustee, so you’ll need to choose between an individual or corporate trustee structure.

An individual trustee structure can be a cheaper and simpler option.¹

This is because you don’t need to establish a company when you choose an individual trustee structure, and members are not required to understand and adhere to corporations law.²

While it can be a cheaper option initially, if your fund members change over time, the fees and paperwork associated with this may outweigh any upfront cost savings.³

A corporate trustee structure on the other hand, will generally give you more flexibility, choice and potential protection from liability claims.⁴ However, all fund members will broadly need to be directors of the corporate trustee company.

It’s also often easier and cheaper to add a member or remove one. And, as corporate trustee structures can cater for a single member or director, if one member of a two-member fund leaves or dies, the fund can continue to operate without needing to restructure.⁵

Further, if you’re looking to borrow money to buy property in your SMSF, a corporate trustee structure could be a better option, as most banks require this structure to be in place when lending to an SMSF.⁶

Each structure has its own requirements and you can read about these in the trustee structure guide.

3. Establish a trust deed

A trust deed is a legal document that sets out the rules for establishing and operating your fund.

According to the Australian Taxation Office (ATO), it includes information such as the fund’s objectives, who can be a member and whether superannuation benefits can be paid as a lump sum or income stream.⁷

The fund’s governing rules are based on the trust deed as well as superannuation laws.⁸

The nominated trustees, who need to meet eligibility criteria, are typically appointed under the trust deed and are bound to the rules that are set out in it.⁹

4. Register your SMSF

Every SMSF must be registered with the ATO if it is to receive the tax benefits that come with superannuation.

This is when you can nominate for your fund to be regulated, get a tax file number (TFN) and Australian business number (ABN), and register for goods and services tax (GST) if necessary.¹⁰

5. Set up your fund’s bank account

You need to set up a bank account for your SMSF which is separate from trustees’ individual bank accounts. You can roll superannuation into this account and it’s where future contributions and income from investments will be paid.¹¹

While you don’t need a separate bank account for each member of the fund, you’ll need to document and keep records of members’ contributions, investment earnings and payments.¹²

Another thing to note is, if your SMSF receives contributions from employers, you may need what’s called an electronic service address to capture various data.

6. Create an investment strategy

Your fund’s investment strategy, which needs to be documented, determines how your fund will invest money—it may include a mix of cash, term deposits, shares, managed funds and direct property.

Some of the things you’ll need to consider when creating your fund’s investment strategy are:

• The personal circumstances of all fund members

• The expected risks and returns of the fund’s investments

• The benefits of diversifying the fund’s investments

• How easily the fund’s assets can be converted into cash

• The insurance needs of fund members

• The fund’s ability to pay benefits to members when they retire.

7. Stay up-to-date

It’s important to ensure you’re across any changes to SMSF rules and regulations so that your fund remains compliant. After all, even if you engage professionals to help you along the way, the management of your SMSF ultimately rests with you.

There is a lot to think about when deciding whether you should take your super into your own hands, so please call us on 02 9299 1500 if you would like to discuss.

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