Setting up a self-managed super fund

There is a range of professionals who can assist when establishing an SMSF including:

• An accountant or professional fund administrator for initial organisational requirements. They can guide you through the process of setting up, and help meet the initial requirements to be a complying fund with the ATO.
• A lawyer to draw up the trust deeds. The trust deeds are legal documents that establish the fund and its rules. Even simple mistakes or omissions in the trust deed can lead to expensive problems later.
• A financial or investment advisor to help create an investment strategy that meets the needs and goals of the members while also complying with the superannuation laws.

Once established, you’ll also need to get ongoing help from:

• A registered SMSF auditor for your annual audits. The ATO actually requires that you have an independent auditor go over the fund’s accounts each year.
• A tax accountant to prepare your tax returns, unless you’re comfortable doing it yourself.

Naturally, all these professionals will charge fees for their services.

There are two trustee structures to choose from:

• Individual trustees: two to four individuals who act personally as trustees
• Corporate trustees: a trustee company with one to four directors.

The number of individual trustees, or directors of the corporate trustee company, will depend on whether your SMSF is a single-member or a multi-member fund. In all cases, at least one trustee or director must also be a member (beneficiary) of the fund.

However, trustees/directors cannot be employees of other trustees/directors unless they are related.

The trustee structure will also have an influence on:

• The cost of setting up an SMSF
• The ownership of fund assets, and
• What happens to the fund if a person can no longer be a trustee.

Make sure that the people you appoint as trustees or directors are eligible. For example, they cannot be currently bankrupt, disqualified by ATO or APRA from being a trustee, or hold a conviction for an offence of dishonesty such as fraud, theft, or illegal dealings.

Trustees must:

• Accept their appointment in writing, and
• Sign the Trustee Declaration confirming that they understand the duties and responsibilities of being a trustee.

Your SMSF is an entity known as a trust because it holds assets such as property and shares in trust for the benefit of its members, i.e. its beneficiaries.

The trust deed is the legal document that sets out the rules of the fund.

To create your SMSF you will need to:

• Appoint your eligible trustees
• List the beneficiaries (members)
• Ensure your trust deed is drawn up by a qualified professional, listing the beneficiaries, payment preferences and other rules of the fund. The deed must then be signed by trustees and executed according to the laws of your state
• Allocate initial assets worth at least $10.

By law, even though your superannuation is self-funded, your SMSF must still be recognised as an Australian fund, which means meeting residency conditions such as where it was set up, where it is managed from, and where the beneficiaries/members live.

The status of a fund can change if an active member moves from Australia for an extended period of time, and professional advice should be sought if a member wishes to retain their Australian residency in relation to their SMSF.

The fund’s bank account is used to hold cash assets, accept contributions, pay expenses, and receive income from investments.

Details of the fund’s bank account should be provided to the ATO at registration (step 7) or as soon as possible afterward. 

Funds have 60 days within which to register with the ATO and apply for an ABN. If an SMSF does not register, then it cannot claim tax concessions or deductions for contributions.

Funds that receive contributions from employers need to be set up for SuperStream, the data and payment standard for the super industry. This includes getting a special electronic service address either via your fund administrator or a SuperStream messaging service provider.

A fund can be wound-up or closed for a number of reasons including a breakdown in the relationship between trustees or members, if someone dies, or if a trustee can’t perform their duties.

Rules for what happens to the SMSF in such a scenario are often included in the trust deed as well as in the ATO’s superannuation rules.

Plans can also exist outside the deed and include nominating other beneficiaries if a member dies, and members appointing powers of attorney to a trusted third party.