How do you set up an SMSF?

A self-managed super fund (SMSF) allows you to have more control over how your retirement savings are invested than a regular super fund.

But starting your own SMSF requires a lot of work upfront to ensure it is set up correctly and is eligible for tax concessions, so you may wish to consider engaging a professional accountant or financial planner to help you. Here’s our general overview of the key steps involved with an SMSF setup.

How to set up your own SMSF in 5 steps

To manage your own SMSF setup, you’ll need to complete these key steps:

1. Establish a trust
2. Obtain the trust deed
3. Have the trustee sign a declaration
4. Register with the ATO
5. Open a cash account

We’ll explain these steps in more detail below.

Related: SMSFs: 8 things you need to know before you jump in

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Here’s our guide on the steps you need to take to start an SMSF.

1. Establish a trust

An SMSF, like any super fund, is a type of trust, which is an estate-planning tool that puts a person or entity in charge of holding an individual’s assets in an account for the benefit of another person or people. The difference with an SMSF is that the members are responsible for setting up and managing the trust (though they may enlist professional help with this). So the first step is to establish the trust which will hold the fund’s assets. The Australian Taxation Office (ATO) advises that to create a trust, you’ll need:

• trustees, or directors of a corporate trustee
• governing rules (a trust deed)
• assets (an initial nominal amount of money can be used to give legal effect to the trust, for example, $10 attached to the trust deed)
• identifiable beneficiaries (members).

Depending on whether your trust is single-member or not, the number of trustees and members, along with whether a member is required to be a trustee, will vary. The members of an SMSF can also be the trustees, or they can appoint a corporate trustee (in which case they will generally act as directors of the trustee, the ATO says).

2. Obtain the trust deed

A trust deed is a legal document that sets out the rules around establishing and operating the SMSF. It contains details of things like:

• the fund’s objectives
• who the trustees are
• who can be a trustee
• how trustees are appointed or removed
• who can be a member
• when contributions can be made
• how and when benefits can be paid, for example as a lump sum or income stream
• the procedures for winding up a fund.

It’s important to know that a trust deed is a complex legal document which must be prepared by someone competent to do so, such as a specialist lawyer. It must be signed and dated by all trustees in order to come into effect, and should be properly executed according to state or territory laws.

The trust deed should be revisited and updated regularly to reflect the needs and objectives of the fund’s trustees and members.

3. Have the trustee sign a declaration

Within 21 days of the trustee(s) being appointed, all trustees and directors must consent in writing to their appointment and sign a copy of the ATO’s trustee declaration form stating they understand their responsibilities and duties as trustees of the fund.

Some of these duties include:

• acting honestly in all matters concerning the fund
• exercise skill, care and diligence in managing the fund
• acting in the best interests of all the members of the fund
• keep records of decisions made about the running of the fund
• taking appropriate action to protect the fund’s assets
• refraining from entering into any contract or doing anything that would prevent them from, or hinder them in, properly performing or exercising their functions or powers as a trustee or director of the corporate trustee of the fund

Related: SMSF trustee checklist

4. Register with the ATO

You’ll need to formally elect for your fund to become an SMSF. This must be lodged with the ATO within 60 days of your SMSF setup. The election lets the ATO know that your trust is associated with a complying SMSF, and is therefore, according to the ATO, eligible to be taxed at the concessional rate instead of the highest marginal rate. Part of this process will be to apply for an Australian Business Number (ABN) and Tax File Number (TFN) . If your fund is likely to have an annual turnover of more than $75,000 per annum, then it also needs to be registered for GST, though the ATO says this won’t apply for most SMSFs because contributions, interest and dividends don’t count towards GST turnover.

Before registering your fund, you’ll need to make sure it is an eligible Australian super fund.

5. Open a cash account

Every SMSF needs its own cash account for three reasons:

• to hold the cash component of its portfolio, where it can accrue interest
• to accept contributions and rollovers from members
• to pay expenses incurred by the fund, including the annual supervisory levy, accounting fees, and taxation liabilities.

Consider appointing SMSF professionals to help you

SMSFs aren’t suitable for everyone. SMSF specialist adviser with Verante Financial Planning, Liam Shorte, told Canstar the main trap people can fall into is being quick to set up their SMSF and rollover their super balance, but then freezing and losing confidence when buying assets. Mr Shorte said it was important that people clearly think out their investment strategy before rolling any money ove, warning that “it’s not set and forget.”

If you’re considering setting up an SMSF, Mr Shorte recommended exploring the ATO’s self-managed super funds website and its numerous videos that clearly run through the whole process of setting up and managing an SMSF.

“If you go through the videos and can understand the responsibilities and be willing to take on those responsibilities, then you could be the right person to set up an SMSF,” Mr Shorte told Canstar.

Keep in mind that you’re in charge and responsible for operating your fund within the law. So, first make sure you’re confident in doing so before you set it up. It is also worthwhile considering appointing SMSF professionals to help ensure that it’s being set up and managed correctly.

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