Steps to setting up a SMSF from scratch

Guide to establish an SMSF

Get ready to unwrap the Australian superannuation surprise! It's like receiving a mysterious gift from your future self that you can't open until retirement. But here's the twist: there's no guarantee it won't be a pair of socks instead of that fancy watch you've been dreaming about. Talk about suspense!

Okay, jokes aside, let's dive into the fabulous world of superannuation. In plain language, superannuation is all about those retirement pension benefits funds. But wait, there's more! Employers go the extra mile by contributing to these funds on top of your regular paycheck. They call it the 'super guarantee,' and it's like the icing on the financial cake.

But hold on tight because we have another trick up our sleeve. Enter the Superannuation Industry (Supervision) Act of 1993, which brings us the marvelous Self-Managed Superannuation Fund (SMSF). This beauty allows you to take control and become the boss of your own super fund. Picture yourself making all those savvy investment decisions, like getting a piece of that direct property action or diving into the thrilling world of stocks.

Now, before you start planning your acceptance speech for the Best Fund Manager award, let's be real. Managing an SMSF is no piece of cake. It takes time, effort, and a sprinkle of expertise to handle it like a pro. Trust us, there are rules and regulations that you must follow to ensure you're on the right side of the law. It's like being a superhero with great power, but also great responsibility.

According to the legendary Section 17A, an SMSF is a cozy club with fewer than five members. Each member gets to wear the trustee or director hat of the corporate trustee of the SMSF. It's like being part of an elite squad, making financial statements, filing tax returns, and keeping those records spick and span. Oh, and let's not forget about playing by the investment rules and other exciting regulatory requirements.

Now, let's talk about the VIP status of setting up an SMSF. It's a hot choice for those who want ultimate control and flexibility over their retirement savings. You become the master of your financial destiny, making the investment decisions that light your fire. But here's the scoop: you should have a cool $100,000-$200,000 in your pocket to embark on this super adventure.

If you're considering setting up an SMSF, here are the steps you need to follow.

Choose your structure: The legal requirements of a fund depends on the structure of the SMSF. SIS Act, 1993 provides for two types-
1. a single member fund or a multiple member fund
2. individual trustees or a corporate trustee
Choose Trustees: The next step is to choose your trustees. An SMSF can have up to four members, and each member must also be a trustee (or director of a corporate trustee). Any person who is over the age of 18 years, has legal ability and is not a disqualified person can be a trustee of the fund. ATO also states that to be a trustee or director of a corporate trustee, you must not have any outstanding tax or super affairs such as any unlodged tax returns or unpaid tax debts. In fact, a disqualified person cannot be involved in an SMSF in any way, including by using a legal personal representative.
Create a Trust Deed: Because an SMSF is a trust, creating and executing the trust deed will legally establish your fund. Once you've chosen your trustees, the next step is to create a trust deed. A trust deed is a legal document that sets out the rules and requirements of your SMSF, such as how it will be managed, who the trustees are, and how the fund will be run. It is the very law that governs your fund and that is why it is crucial that you not only understand it well but get it right and ensure that it complies with the SIS Act, 1993.
Check Your Fund is an Australian Super Fund: Before you can register your SMSF, you need to ensure that it meets the Australian Taxation Office's (ATO) criteria for being an Australian superannuation fund. This includes meeting certain residency requirements and being compliant with super and tax laws. For it to be an Australian Superannuation Fund, it needs to comply with all the requirements given below:
1. The fund was established in Australia or at least one of its assets is located in Australia
2. The central management and control of the fund is ordinarily in Australia
3. The fund either has no active members or it has active members who are Australian residents and who hold at least 50% of either the total market value of the fund’s assets attributable to super interests or the sum of the amounts that would be payable to active members if they decided to leave the fund.
Holding Assets: To be legally established, your fund needs to hold assets. Usually trustees can accept an initial contribution on behalf of a member and hold it with the trust deed. This formal holding of assets allows them to officially register the SMSF and open a bank account.
Register Your Fund and Get an ABN: Once you've confirmed that your SMSF meets the ATO's criteria and holds assets, you can register your fund. You need Australian Business Number (ABN) and a Tax File Number (TFN) for your SMSF. These are a unique identifier that you'll need to manage your SMSF. After legally establishing the fund, you have 60 days to register it with the ATO.
Set Up a Bank Account: Once your SMSF is registered, you'll need to set up a separate bank account for your fund. This account will be used to receive contributions and make payments for the SMSF. For members, you do not need a separate account but you must keep a separate record of their entitlements (called a member account). As a safeguard, ATO recommends using joint bank account signatories to protect fund’s assets.
Develop an Investment Strategy: As the trustees of your SMSF, you'll need to develop an investment strategy that outlines how your fund will be invested. This strategy should take into account the risk profile of the members, the investment objectives, and the cash flow requirements of the fund.
Roll Over Your Super: If you're transferring money from an existing super fund to your SMSF, you'll need to roll over your super. This involves transferring the funds from your existing fund to your SMSF, which can take a few weeks to process.
Plan for the future: Life is unpredictable and so it is important to protect fund members and their future from the unexpected. Consider arranging insurances to protect your fund members or their dependants against death, injury or ill-health and assets from financial loss. This should also include your death benefit nominations. Even though binding death benefit nominations are good, having a reversionary pension in place ensures that your dependants are not hindered from receiving pensions in case anything unfortunate happens to you.

So, there you have it, folks! Superannuation in Australia is like a thrilling surprise package from your future self, packed with retirement goodies. From the super guarantee to the legendary SMSF, you have the power to shape your financial destiny. Just remember, with great control comes great responsibility. Now go out there and conquer the super world like the financial superhero you are!

Please be advised this is general information only, and is not to be taken as legal advice. If you would like more information, or have a legal query, please contact Abbott & Mourly directly.
Reviewed: 17/01/2024