If you want to set up a Self-Managed Super Fund (SMSF), there are a number of steps your need to follow to make sure you get it right. We advise that you get professional advice before setting up your fund.
Our Sydney accountants have put together a guide to help you understand the steps you’ll need to take to set up your fund and start operating it.
Step 1: Ensure you understand your obligations
Before setting up a SMSF, it’s important that you understand your obligations and responsibilities involved in managing your own super fund. Take the time to educate yourself – do your research and understand self managed super funds, after all, you’re about to take control of one of your largest income producing assets.
Step 2: Determine who are going to be members in your SMSF
You can have up to four members in your SMSF – you, your spouse, mum and dad, children or even siblings. Before deciding on who will become members, there are a number of things you have to consider:
- Will it be more cost effective than having your money in a retail or industry super fund
- If you have more than one member, who will take control over the investment decisions
- Do you invest the money collectively or will each member have their own investment strategy
- Who will take control of the money if a member dies
- Are there any taxation or investment benefits on having other family members join the fund
Step 3: Who will be the trustee of your SMSF
Who will you appoint to be the trustee? You have two choices: the individual members can be the trustees or you can have a company acting as the trustee of your fund. If you choose a company, understand that all members must be directors of the company. We generally recommend that you set up a company (corporate) trustee.
There a number of advantages in choosing a corporate trustee as opposed to individuals members. A big one is that you’re able to pay out estate planning benefits, pensions to children and Transition to Retirement pensions as income streams, whereas, you can only pay out retirement benefits from your fund if you appoint individual trustees.
Corporate trustees don’t require an ABN, TFN or bank account and don’t have to lodge a tax return.
Click here for more information on corporate vs individual trustees
Step 4: Arrange your trust deed to create the fund
If there’s one thing you can’t afford to do is get this wrong. SMSFs are extremely powerful wealth creation tools that provide excellent investment, tax and estate planning advantages. In order for you to access these powerful benefits, your trust deed must be carefully drafted.
Unfortunately most SMSFs have poorly drafted trust deeds that don’t allow their funds work at full throttle, costing funds tens if not hundreds of thousands of dollars in lost planning opportunities.
We seriously recommend that you get your trust deed drafted by a tax lawyer and resist the temptation of cheap online setups. With SMSFs you really do get what you pay for. All fees paid to obtain your trust deed and trustee company documentation can be reimbursed from your SMSF once it’s set up.
Step 5: Appoint trustees
Your fund must now appoint the trustees in writing. You as a trustee have to sign a trustee declaration within 21 days of becoming a member or director of the trustee company stating that you understand the duties of a SMSF trustee.
Step 6: Apply for your fund to be regulated by the ATO
In order for your SMSF to receive its favourable tax status it has to elect to be regulated under the Superannuation Industry Supervision (SIS) Act. The fund will have to complete a number of registrations with the Australian Taxation Office (ATO) in order to be regulated. This has to be done within 60 days. Your fund will also apply for a Tax File Number (TFN) and Australian Business Number (ABN).
Your fund will be put on the Super Fund Look-up website at www.abn.business.gov.au, which is then used by other super funds to check whether your fund is a complying fund for them to be able to transfer super benefits too.
Step 7: Apply to become a member of your fund
Each member now has to apply for membership of your SMSF and supply all member details and tax file numbers. This meeting will be documented and minuted. This application will enable your fund to accept super contributions.
Step 8: Set up a bank account
Your fund will now need to set up a bank account that is separate from your personal and business accounts. This bank account will be used for managing contributions, making investments, receiving investment returns and expensing any costs incurred within the fund.
The name of the account should be the name of the trustees or trustee company that you appointed for the SMSF. You will need the following documents to set up the account: original signed trust deed, original constitution and certificate of incorporation of the trustee company, ABN and TFN of the SMSF.
Step 9: Rollover Funds into your SMSF
After setting up your SMSF, you’ll need to get transfer/withdrawal forms from your existing super fund and rollover the money to your SMSF. You’ll also need to notify your employer/payroll officer that you have changed your nominated super fund to your SMSF. For both steps, you’ll need to show several documents including: a letter confirming the SMSF is a complying fund and eligible to receive rollovers and contributions, a certified copy of relevant pages from the SMSF trust deed, and a certified copy of identification.
Step 10: Apply for insurances
Your previous retail/industry superannuation fund would have had some insurance cover such as life insurance and income protection included. When you transfer 100% of these funds into your SMSF, you’ll lose these benefits, so it’s important that you organise replacement insurance policies. These policies will be owned and paid for by your SMSF.
Step 11: Create an investment strategy
Once you’ve completed the above steps, it’s time to set out a well documented investment strategy, which sets out your funds investment objectives and how your fund will go about achieving them. You’ll need to consider what type of investments are appropriate to your fund, risk management, likely returns from investment, liquidity and so on.
We recommend that you talk to a financial adviser to help you prepare an investment strategy.
Step 12: Record keeping
Once you’ve completed the above steps your fund will be established and it’s now up to you to ensure you to stay on top of things and keep up to date with all your records, legal requirements, investment strategies, payments to members and their beneficiaries and so on.
Thinking about setting up a self managed super fund?
Setting up a self managed super fund gives you the opportunity to actively manage your super on your terms. However it comes with a lot of responsibilities. It doesn’t matter who takes a more active role in managing your fund, each trustee or director is equally responsible.
Schedule a no obligation self managed super consultation with one of our super accountants in Sydney, today!
You’ve got nothing to lose and everything to gain!
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