News / Feb 11, 2022

The 7 Steps on How to Set Up a Self-Managed Super Fund

Mark Phillips
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The technical steps on how to set up a self-managed super fund are relatively straightforward:

  1. Establish a trust
  2. Create a trust deed
  3. Sign a declaration
  4. Register with the ATO
  5. Open an SMSF bank account.

What is not so straightforward is making the correct decisions behind each of these steps.

That’s likely the reason the Australian Taxation Office (ATO) has added some steps:

  1. Consider appointing professionals to help you (as the first step)
  2. Prepare an exit strategy

The most significant decision is to set up an SMSF in the first place. But let’s assume that you obtained independent professional advice and have made that decision for all the right reasons.

Now what? 

You now have a series of decisions rather than a set of steps. Each of them will determine how you will achieve the fund’s sole purpose of providing retirement benefits.  

Decision #1: When – and from whom – to seek professional advice

Although self-managed super funds are often referred to as DIY funds, you will need independent advice.

But did you know that not all SMSF accountants and advisers are equal? 
So you must decide when to seek personal financial advice and also who the best person will be.

Professional Advice On Investments

One of the first reasons people give for setting up an SMSF is to control their investments. 

However, unless you are a financial and investment expert, you might need financial advice to set up, implement and regularly review your investment strategy. This is critical to providing retirement benefits to fund members. You also need reviews for your annual SMSF audit. 

Ensure that anyone who gives you advice on a specific financial product (e.g., particular Australian securities) or influences your investment decisions (e.g., to sell shares) has an Australian Financial Services licence –  AFS licence

Accounting, Taxation And Compliance Services

Financial statements, audits, and tax lodgements must be completed every year.

Getting all of them completed is

  • A time-consuming administrative function 
  • A compliance exercise, requiring expert knowledge, and also 
  • An opportunity to gain the best possible tax concessions and avoid penalties

The accountants you choose do not need an AFS licence but should have in-depth knowledge and experience of SMSFs, tax, and superannuation law. 

They can show you how to set up a self-managed super fund, give you factual information and tax advice, administer your fund, and be your Tax Agent. 

Decision #2: Establishing A Trust

In a retail super fund, a board of trustees makes decisions for the fund. In an SMSF, each member is also a trustee or a director of the corporate trustee.

There are several decisions to make when you set up a trust. 

The Structure Of The Trust

You have a choice of how to structure your own SMSF:

  • Individual trustees, or
  • Corporate trustee (setting up a company as the trustee)

Your decision has implications for 

  • How the fund must be administered
  • The rules that will apply
  • Ownership of the fund assets
  • Individual liability, and 
  • Costs (among other things) 

Speak to your financial planner about the best option for your financial situation.

Appointing the Trustees

You can appoint up to a maximum of six trustees. 

  • If you are the sole member of your SMSF, you must appoint one other trustee.
  • If members are younger than 18, a parent, guardian, or legal personal representative can act on their behalf.

Besides being sure that these are people you’d like to entrust with your financial future, you must also check that, 

  • They are eligible to be a trustee or director. 
  • New directors have a Director ID Number (DIN). The rules have recently changed, and the DIN is now required before someone can register as a director. They must also apply in person; nobody can do this on their behalf.

Having A Starting Asset

You can use a minimal amount to set up the fund. Whatever is deposited must be allocated to a member.

The date on which this first asset is paid into the SMSF is also the establishment date.

Having A Name For Your SMSF

If you choose a name that has already been taken, it will delay your ATO registration.  

You can check for names on the Super Fund Lookup.

how to set up a self managed super fund

Decision #3: Creating A Trust Deed

What is written in the deed prescribes what trustees may and must do – provided there is nothing contrary to superannuation law. 

What Must Be Included In An SMSF Trust Deed?

The deed is a legal document, and a legal practitioner or someone with in-depth SMSF experience should draw it up.

For example, it will define

  • Who can be trustees or members 
  • How member benefits will be calculated, and investment earnings credited
  • The types of investments that can be utilised
  • The types of contributions that can be accepted

Equally, what is not in the deed cannot be done. 

For example, 

  • Fund members cannot nominate beneficiaries of their funds after their death if no clause allows for binding death benefit nomination. 
  • And they cannot even amend the deed later (through a deed of variation) if they haven’t made a provision that allows that.

Trustees would be wise to get professional help to set up the deed.  

Remember The Basics

All trustees must sign and date the trust deed and have their signatures witnessed.

  • If it is not signed, it will be invalid. 
  • Trustees operating with an invalid deed could have audit queries, ATO sanctions including loss of tax concessions, and even having the wrong beneficiaries paid.
  • You will need a deed of correction or rectification to fix any errors.

Trustees or directors must keep the original hard copy of the deed, plus any updates, for the lifetime of the SMSF and five years after the final tax return has been submitted. It’s a good idea to keep digital copies too!

Decision #4: Signing The Declaration

Each trustee and director must sign a declaration that they understand their obligations and responsibilities. 

  • They must sign the declarations within 21 days of accepting the appointment.
  • You must retain them for the life of the SMSF and ten years after it winds up.

Signing the declaration means you have agreed to make yourself ultimately responsible for 

  • Making decisions that are in the best interest of all members
  • Being compliant with the SIS Act, taxation legislation, and even parts of family law

All trustees and directors are equally responsible, even for decisions where they were not actively involved. 
You can get a form here or from your SMSF administrator if you have appointed one.

Decision #5: Registering With The ATO

Your only decision here is whether you will DIY or use an SMSF administrator or tax agent to help you. 

The ATO has made all the other decisions about what you must do:

  1. Check that your fund qualifies as an Australian super fund
  2. Register your SMSF within 60 days of establishing your fund and signing the declarations. As part of the process, you will
    1. a. Apply for an Australian Business Number (ABN)
    2. b. Apply for a Tax File Number (TFN)
    3. c. Elect to have your fund ATO-regulated (otherwise, you will not qualify for tax concessions) 
    4. d. Provide 
      1. d. i. The registration number of your Tax Agent if you have decided to use one. They will then be able to do work on your behalf.
      2. d. ii. The SMSF business address, contact details, bank account details (if already available), and the name of one authorised contact. The business address can be the home address of one of the members or the office of the Tax Agent. 
      3. d. iii. Details of individual trustees and members, or the corporate trustee and directors. Enter the personal TFN for each member. (You are not obliged to provide member TFNs as part of the application process, but it will delay the establishment. The fund will have to pay higher taxes on contributions if the member does not provide their TFN to the trustee.) Also make sure that all details are precisely correct. Even a spelling error or leaving out a member’s middle name can create problems down the road.
    5. e. Register for GST if necessary – usually only if the fund is expected to have a gross income of more than $75,000 per year from the lease of equipment or commercial property.
    6. f. Get an Electronic Service Address (ESA). You need this internet address for employers to contribute to your fund and rollovers to or from your fund.  

Trustees can use the online application form here. Tax agents will register their clients via the Tax Professional’s Services.
You can check the registration status on ABN Lookup and Super Fund Lookup.

Decision #6: Opening An SMSF Bank Account

The SMSF needs a cash account to accept contributions, rollovers, and investment earnings. It must also pay ongoing costs like tax, accounting and audit fees, and member benefits.

Trustees can decide which bank to use. Some platforms provide trading facilities.

What is essential is to have the account in the name of the SMSF and never to get funds mixed up with personal accounts.

Decision #7: Preparing an Exit Strategy

An exit strategy for an SMSF is a bit like a pre-nuptial agreement. You hope that everything will go well forever, but recognise that it’s possible to have a relationship breakdown, death or incapacity, or a significant change in personal or financial circumstances.

Make sure a clause in the SMSF deed gives direction for these situations.

Concerned About How To Set Up A Self-Managed Super Fund? How SMSF Engine Can Help.

SMSF Engine has been providing SMSF administration services since 2012, and our experience with SMSFs dates back to 2004.

We provide services to trustees and SMSF accountants and advisers, lifting the administrative load and allowing them to focus on providing strategic and financial advice to their clients.

We  can help to set up new SMSFs through 

  • Deed establishment
  • Corporate Trustee establishment
  • Facilitating rollovers 

Book a session with one of our accountants so we can show you how to set up a self-managed super fund that will be easy to administer and correct in all the details.

Book Mark Phillips or Book Alex Polorotoff

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