Setting Up A Self-Managed Super Fund: What You Need To Know
Written by: Helen Yau | Advisory Team
A Self-Managed Super Fund (SMSF) offers Australians greater control over their retirement savings, allowing them to choose their own investments and have a say in how their superannuation is managed.
However, managing an SMSF comes with significant responsibility and an understanding of the legal and financial framework. If you’re considering setting up an SMSF, it’s crucial to know the steps involved, the requirements you must meet, and the educational resources available to help guide you through the process.
In this article, we’ll provide an overview of the SMSF setup process and explore the educational resources provided by the Australian Taxation Office (ATO) to help you navigate this journey.
What Is A Self-Managed Super Fund (SMSF)?
A Self-Managed Super Fund (SMSF) is a type of superannuation fund that you control.
With an SMSF, you are the trustee, responsible for managing the fund in accordance with the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the regulations set by the Australian Taxation Office (ATO). You can invest in a wide variety of assets, such as:
- Shares;
- Property;
- Bonds; and
- Cash,
All of which, aim to grow your retirement savings.
Why Would You Choose A Self-Managed Super Fund?
The main reasons you may choose to set up an SMSF are usually:
- Control: You have control over the investment decisions and asset allocation;
- Investment Choices: You can invest in a range of assets, including property, direct shares, managed funds, cryptocurrency and gold and silver; and/or
- Cost-Effectiveness (for large balances): SMSFs may become cost-effective when managing larger super balances due to fixed administration and audit costs.
However, SMSFs are complex to manage and require a thorough understanding of the associated risks and responsibilities. The ATO provides comprehensive educational material to help individuals navigate the setup and operation of their SMSF.
The Steps To Setting Up A Self-Managed Super Fund
Step 1: Understand The Eligibility Criteria
Before establishing an SMSF, it’s important to determine whether you meet eligibility criteria.
- Number of Members: An SMSF can have up to six members. All members must be trustees of the fund, or directors if the SMSF is a corporate trustee; and
- Trustee Requirements: Trustees are responsible for the management of the fund, compliance with the law, and making investment decisions. As a trustee, you need to be actively involved in managing the fund and must ensure it complies with the ATO’s regulations.
Step 2: Choose The Type Of Trustee Structure
There are two types of trustee structures available for SMSFs:
- Individual Trustee: In this structure, each member of the fund is an individual trustee. Every trustee is legally responsible for the actions of the fund; or
- Corporate Trustee: In this structure, a company acts as the trustee, and the SMSF members are the directors of that company. Corporate trustees provide a higher level of legal protection for fund members, as the company, rather than the individual trustees, is legally responsible.
Many SMSF members opt for a corporate trustee structure because it offers greater flexibility and limits personal liability.
Step 3: Create The Trust Deed
The trust deed is a legal document that governs the operation of the SMSF.
It outlines how the fund will operate, the roles of the trustees, and how benefits will be paid to members. The trust deed is a key document for the SMSF, and it must be kept up to date with any changes to superannuation law.
When creating the trust deed, it’s important to ensure that it complies with the superannuation law and meets the specific needs of the members. Many superannuation professionals or SMSF administrators offer services to create trust deeds tailored to your requirements.
Step 4: Register The SMSF With The ATO
Once the trust deed is in place, the SMSF must be registered with the Australian Taxation Office (ATO). You will need to:
- Apply for an Australian Business Number (ABN) for your SMSF;
- Apply for a Tax File Number (TFN) for the SMSF; and
- Register the SMSF for Goods and Services Tax (GST), if applicable.
This registration ensures that the ATO is aware of your SMSF and can monitor its compliance with superannuation laws.
Step 5: Set Up The Fund’s Bank Account
To keep the fund’s finances separate from your personal finances, you must set up a dedicated bank account in the name of the SMSF.
Step 6: Develop An Investment Strategy
One of the key advantages of an SMSF is the ability to tailor the investment strategy to the members’ goals.
An SMSF must have an investment strategy that outlines how the fund will invest its assets and manage risk. This strategy must be reviewed regularly to ensure it remains suitable.
The ATO advises that an SMSF investment strategy be in writing and should consider the following:
- The fund’s objectives and risk profile;
- The age and retirement goals of the members;
- The liquidity requirements of the fund;
- The diversification of investments;
- Whether the fund will invest in specific assets, such as property or shares;
- Strategies for managing investment risks; and
- Whether to hold insurance cover for each member.
An SMSF investment strategy should be clearly documented and updated if the circumstances of the fund or its members change.
Step 7: Make Contributions + Manage The Fund
Once the SMSF is set up, members can start contributing funds to the SMSF.
There are different types of contributions, including:
- Concessional contributions (before-tax contributions, such as personal contributions and salary sacrifice); and
- Non-concessional contributions (after-tax contributions, such as personal contributions).
It’s essential to comply with the contribution limits and ensure contributions do not exceed the allowable caps.
Additionally, the SMSF trustee is responsible for managing and investing the fund’s assets in accordance with the investment strategy. As the trustee, you must ensure that the fund complies with superannuation laws and regulations and that investments are being properly maintained.
Step 8: Annual Reporting + Compliance
As a trustee of an SMSF, it’s your responsibility to ensure the fund meets its reporting and compliance obligations. This includes:
- Annual Financial Statements: The SMSF must prepare annual financial statements;
- Annual Audit: The SMSF must be audited by an independent SMSF auditor to ensure compliance with superannuation laws; and
- Lodging An Annual Return: The SMSF must lodge an annual return with the ATO, including financial and compliance details.
The Role Of The Australian Tax Office’s Educational Resources
The Australian Tax Office provides a wealth of information and resources to assist those setting up and managing an SMSF.
Some key educational materials include:
- The ATO Website: The ATO website offers extensive resources about the rules, responsibilities, and regulations of SMSFs;
- SMSF Trustee Declaration: The ATO provides a trustee declaration form that you must sign when establishing an SMSF to confirm your understanding of your roles and responsibilities as a trustee;
- Education For Trustee: The ATO offers free online education modules to help trustees understand the compliance and operational requirements of SMSFs; and
- ATO SMSF Guide: The ATO provides a comprehensive SMSF guide that outlines the steps involved in setting up and running an SMSF, the obligations of trustees, and how to comply with superannuation laws.
These resources are designed to help trustees avoid costly mistakes and ensure that their SMSF remains compliant with the law.
There are always more questions than you can find in one article, but we’ve got those answers in one place! If you’re interested in learning more about your SMSF, check out these previous blogs we’ve put together: Investing With Your SMSF: What Are The Rules? and Can Self-Managed Super Funds Borrow?
Canny Advisory + Your Self-Managed Super Fund Journey…
Setting up an SMSF offers greater control over your retirement savings, but it comes with significant responsibilities.
Understanding the steps involved, such as selecting the trustee structure, registering the fund with the ATO, and developing an investment strategy, is crucial to ensuring compliance with the law.
The ATO provides a variety of educational materials and resources to guide you through the process and help you manage your SMSF effectively. Canny Advisory is here to assist you with all aspects of setting up and managing your SMSF, ensuring that your fund is compliant with the law and tailored to your financial goals.
Canny Advisory is here to help make every step of that process less stressful and provide professional and proper guidance.
Get in touch to start your Self-Managed Super Fund with Canny Advisory today!
