Self-managed superannuation funds (‘SMSFs‘) are the largest and fastest-growing sector in Australia’s superannuation market. A way to save for your retirement, SMSFs are unique to Australia.
For some, setting up an SMSF can be daunting. Below are 10 steps you can follow to help you along the way.
1. Choose SMSF Trustee Structure
You and your fellow SMSF members will be individual trustees or directors of a corporate trustee. (A trustee is a person or company that holds and invests the SMSF’s assets for the benefit of members.)
The trustee structure you choose will affect the way you administer your SMSF and the type of benefits that the fund can pay. Note, all SMSF members must be trustees. That’s because SMSFs are trusts.
2. Obtain Trust Deed
A trust deed needs to be obtained because an SMSF is a trust. (A trust is a legal structure that allows one or more people—or companies—to manage property for somebody else’s benefit.) Trust deeds are legal documents that specify the rules for establishing and operating your SMSF.
3. Sign Trustee Declarations
Any new individual trustee or corporate trustee director must sign a declaration. This trustee declaration must be signed, in the approved form, within 21 days of becoming a trustee or director. Signing a trustee declaration makes it known that you understand your duties and responsibilities.
4. Record Tax File Numbers (TFNs)
The process of setting up an SMSF requires you to provide the TFN of each individual trustee or corporate trustee director. (You only ever have one TFN. You don’t require a different TFN for the sake of opening an SMSF.)
5. Register SMSF With Australian Tax Office (ATO)
The ATO is responsible for regulating SMSF trustees and ensuring SMSFs are correctly administered. As far as SMSFs are concerned, the ATO has a compliance-based role only. That is, the ATO has no prudential role when it comes to SMSFs. It’s up to SMSF trustees to protect their own interests.
It typically takes the ATO less than a week to approve an SMSF. Once registered, it’s common an SMSF will receive a TFN and an Australian business number (ABN). SMSFs need to be registered with the ATO within 60 days of being established.
6. Open SMSF Bank Account
You need to open a bank account for your SMSF so that it can accept cash contributions, receive income from investments, pay fund expenses, and pay benefits to members.
SMSFs must not overlap with your personal or business assets. That’s why it requires a separate bank account. This account is opened in the names of your SMSF’s trustees.
7. Prepare Investment Strategy
An SMSF must have its own investment strategy. This strategy takes into account the needs and circumstances of all members of a given SMSF. An investment strategy must be prepared before any investments can be made.
The investment strategy should set out the objectives of the SMSF. These should be meaningful and measurable. It should also outline the asset classes that will be invested in order to achieve these objectives.
8. Accept Contributions & Rollovers
As stated above, one of the reasons that SMSFs require a bank account is so that it can accept cash contributions. It is also possible for money to be rolled over (i.e. transferred) directly from another complying superannuation fund.
9. Appoint SMSF Professionals
For SMSFs to remain legally compliant, an independent auditor must be appointed to review its activities each year. It’s also common for SMSF trustees to use the services of other professionals to help ensure regulatory compliance.
10. Plan Ahead
To save hassles down the track, it’s common for SMSF members to complete a binding death benefit nomination (BDBN). That way, in the event of a member death, their super will be paid to their preferred beneficiary—or beneficiaries.
This important step can be quite complicated. Therefore, if you’re considering a BDBN, it’s strongly recommended that you seek legal and other professional advice.