How to set up a SMSF the right way

This is your checklist for setting up a SMSF the right wayIf you ready to set up a Self Managed Superannuation Fund then this guide will help you to ensure you do it the right way.

Some of the abbreviations / acronyms used in this article:

SMSF – Self Managed Superannuation Fund

ABN – Australian Business Number

TFN – Tax File Number

ACN – Australian Company Number

ASIC – Australian Securities and Investments Commission

ATO – Australian Tax Office

ABR – Australian Business Registrar


1.Ensure that you understand your obligations

Before jumping into the nuts and bolts of actually setting up a SMSF, it is essential that you understand your obligations. You are going to be taking over responsibility for an asset that is probably your largest income producing asset – your superannuation.

SMSFs without a doubt are the most superb wealth creation vehicle in Australia and have been used by the wealthy and those ‘in the know’ for the best part of two decades.

You know they are fantastic – that is why you want to set one up – however all these advantages come with responsibilities such as:

  • Putting together an investment strategy and investing your superannuation savings in a way that complies with the relevant superannuation laws (the SIS Act and Regulations)
  • Determining the appropriate type and amount of insurance cover for the members of the SMSF
  • Organising for annual accounts, members statements and income tax returns to be completed and lodged on a timely basis each year
  • Engaging an independent auditor to review the fund each year
  • Keeping educated and up to date with the changing laws and regulations surrounding SMSFs

If you are unsure about any of the above items, I suggest you spend some time on this website and read some of the articles and get educated about SMSFs.

2. Decide on the members

A SMSF needs at least one member however you can have up to four. The members will typically be your family – such as your partner / spouse (including same-sex spouse), children, siblings or even your parents.

There are a few things you need to consider when deciding who to include as members in your SMSF:

  • Will the SMSF be cost effective to operate with just your personal superannuation savings? Or do you need an increased pool of money to make the cost comparable to an industry or retail super fund?
  • Will you combine the superannuation monies of each member and have everything ‘pooled’ under one investment strategy? Or will you separate each member and let them invest in what they want to invest
  • Who will be making the investment decisions? Do they have different needs and objectives? Are they willing to take more risks or do they want stability?
  • Is there potential for conflict?
  • Who will have the ultimate control over the investments of the SMSF?
  • Are their potential tax advantages to having certain members in your SMSF?

Generally, when people establish a SMSF the initial members will be a couple. Typically the next members to be added to the SMSF would be their children – however this is not necessarily the best choice when bringing additional members into your SMSF.

Have a read of my article entitled ‘Why your parents should be your best friends’ to learn more about the fantastic strategies that are available when the older and younger generations work together within a SMSF.

3. Choose your trustee

Before you go and set up your SMSF, you need to get a special purpose company that will act as the trustee of your SMSF.

OK – maybe I am getting a little dogmatic here. Technically, you don’t need a corporate trustee – you can set up a SMSF with two (or more) individuals acting as the trustee, however I believe in the use of corporate trustees so strongly that I simply do not let any of my clients set up a SMSF without one.

There are five six main reasons why you should use a special purpose PTY LTD company as trustee for your SMSF:

  1. Administrative efficiency
  2. To have a single member fund
  3. Ability to pay lump sums rather than just a pensions
  4. Access to the 15% pension rebate
  5. Liability protection
  6. Increased borrowing capacity (LVRs) for limited recourse borrowings

For further information about the above reasons, you need to check out my article ‘5 reasons why you need a corporate trustee for your SMSF (and why 90% of people get it wrong)‘.

Setting up your special purposes trustee company should be relatively easy and should be able to be done at the same time as the set up of the SMSF itself.

All members of the SMSF will be required to be directors of the trustee company, and will usually be shareholders as well. The trustee company will not need its own ABN, TFN, bank account or be required to lodge any annual tax returns.

The ongoing costs and obligations involved in having a corporate trustee for your SMSF are $41 $43 payable to ASIC each year to keep the company registered, and you need to ensure you keep the details of the directors (such as addresses etc) up to date – which can be done easily online.

It is important that you select a trustee company with a constitution (or rules) that integrate seamlessly with your SMSF trust deed to ensure there are no conflicts. Unfortunately the majority of the inexpensive online company set up providers either use the generic ‘replaceable rules’ or a constitution that may be written in a manner that is too general to deal with all the advance strategies that are available in SMSFs.

When you organise for a trustee company to be set up, you need to ensure that the name you choose for your company is unique. You can click here to search ASIC to confirm your desired company name is available.

It is also essential that your names and date of birth that are used to register your trustee company with ASIC are correct as this information will be used by the ATO later on when you apply for your ABN and TFN for your SMSF (sorry about the excessive use of acronyms in that sentence).

To make it easy I have listed my preferred trust deed and company suppliers under the resources section of site. Click here to find who I recommend.

4. Select your trust deed

Not all SMSF trust deeds are created equal. That is why (if you search on the internet) there is such a variety of prices.

When it comes to SMSF trust deeds, it is definitely a case of getting what you pay for. You need to select a trust deed that enables you to maximise the potential a SMSF can offer when it comes to building your wealth while protecting you and your family at the same time.

Setting up a SMSF with a cheap trust deed is like buying a Porsche and only driving it to the end of your driveway to collect the mail – you will never be able to take advantage of its full potential.

Once again, to make this process easier you can check out my recommended trust deed suppliers in this article.

Actually getting your hands on both your SMSF trust deed and trustee company documentation should be relatively easy. You need to complete the forms provided by your trust deed supplier and pay the required fee – which can be reimbursed from your SMSF once it is set up and has some cash from either your rollovers or contributions.

Once you receive your SMSF trust deed and other documentation, ensure you that all the names, dates and addresses are correct.

Some providers include other services together with the establishment of the SMSF such as ABN/TFN applications, opening a bank account or share trading account, specialist advice / consulting etc – however the remainder of this article assumes you have to do these things yourself.

Through EvolveMySuper you can instantly set up your new SMSF and download all the necessary documentation through the Superfund Partners Document Portal.

5. All the fun stuff – ABNs / TFNs / Rollovers / Insurances

Once you have your SMSF trust deed and trustee company documentation, you are ready to actually commence bringing the more tangible or real aspects of your SMSF into existence.

The following table outlines the key tasks you must go to set up your SMSF the right way:

No. Item Details
1 Check all documentation and sign it
  • Sign and date the SMSF trust deed
  • Sign all the ASIC consent forms and directors minutes (if not done so already)
  • Sign the ATO’s trustee declaration form (click here)
2 ABN / TFN application
  • Complete online via the ABR website here
  • You will need the personal TFNs of the members/directors and also the ACN of the trustee company
  • Ensure you tick the option to deal with the ATO electronically and enter your email address
  • It can take up to 28 days for the ABN to be issued
3 Bank account
  • Your SMSF will need a bank account to receive contributions and rollovers / transfers from other super funds
  • Take the following to the bank to set up the account:
    • Original signed SMSF trust deed
    • Original trustee company constitution & certificate of incorporation
    • ABN and TFN of the SMSF (if available)
    • 100 points of identification for the members/directors
  • The name of the account should be the trustee company with the name of the SMSF as the ‘account designator’ or mentioned in the account name somewhere
  • If you are planning on trading shares using your SMSF it is a good idea to set up your SMSF bank account with the same / related company (i.e. if trading via CommSec you would set up an account with the CBA)
4 Rollovers / Transfers
  • Prior to requesting a transfer of your existing industry or retail super monies to your new SMSF, you need to review the insurance attached to those existing accounts.  Please refer to #5 below before completing any transfer requests.
  • Obtain the necessary transfer request / withdrawal forms from your existing retail or industry super fund(s) and complete all details
  • If you cannot locate the form on the super funds website, the ATO has a generic form which can be found here
  • Ensure you read the instructions on the form and attach the following documentation to ensure your transfer request is processed without delays:
    • Certified copies of your driver’s licence
    • Letter confirming the SMSF is complying and allowed to except rollovers (download a copy here)
    • Certified extract of the relevant pages from the SMSF trust deed to confirm the SMSF is real (optional)
  • Provided you correctly complete the transfer request forms and provide all necessary documentation the rollovers should be processed within 28 days of the retail / industry super fund receiving them
5 Insurances
  • Chances are that your current member account within the retail / industry super fund included some insurance cover – such as life insurance and total and permanent disability insurance If you transfer 100% of your superannuation savings to you SMSF you will lose these benefits
  • You need to organise replacement insurance policies that will be owned (and paid for) by your SMSF
  • Once again check out the resources page for details of my recommended insurance consultants
  • It will not cost you anything to get some quotes
  • An alternative if to keep a minimum amount in the industry or retail super fund accounts to keep them open and the attached insurances active.  This enables you to get the cash into your SMSF and invested while providing additional time to organise replacement insurance cover.  A second rollover can be completed once replacement cover is organised in the name of your SMSF.
6 Notify employers
  • You need to notify your employer / payroll office of your change of super fund to your new SMSF
  • You should give them the following information:
    • Letter of compliance confirming the SMSF is eligible to receive contributions (same letter as for the rollovers)
    • Letter instructing how contributions can be made to the SMSF including BSB and account number
7 Investments
  • You need to prepare an investment strategy document for your SMSF
  • There is no required format specified by the ATO however it must take into consideration the following factors
    • Risk
    • Diversification
    • Liquidity
    • Needs of members
    • Insurance (see point below)
  • To determine the applicable risk profile for the members of the SMSF, have each individual member complete the Colonial First State Risk Profile Tool to help you put together your investment strategy
  • If your SMSF is also going investment in derivatives such as options, warrants, CFDs etc, then you will also require a Risk Management Statement as part of your investment strategy
  • Insurances – new regulations were introduced on the 7th of August 2012 requiring all SMSF trustees to consider insurance for their members.  This means that investigate the appropriate level of insurances (life insurance, total & permanent disability insurance etc) for the members, make a decision on what insurances to take out, and document those decisions.
8 Record keeping
  • Part of your responsibilities with your SMSF is to keep adequate records
  • Even if you truly want to do-it-yourself solution, I still do not recommend to attempt to prepare the special purpose SMSF accounts yourself.  Even if you are a gun on MYOB, Quickbooks, Xero or Sassu and are capable and competent enough to prepare account for a business (or businesses), and are quite happy smashing through your personal income tax returns on etax each year – SMSFs are on a whole other level!
  • Firstly, the above accounting packages are great (assuming you know how to use them) but they are ‘generalist’ and SMSFs require ‘specialist’ treatment of certain transactions such as contributions, rollovers,  investment transactions and all the member and component recording.
  • Secondly, your SMSF accounts and return need to be audited by an independent auditor each and every year.  It will simply cost you too much in time and money to try and get your self-prepared SMSF accounts to a standard that the auditor will sign off on.
  • Please be aware that the above comments are directed at the 98% of people who do not have specialist SMSF accounting experience.
  • In all cases before setting up a SMSF I recommended finding an appropriately qualified SMSF accountant or administrator that can look after all the accounts, tax and administrative requirements of your SMSF – all at a price you are happy with.
  • It is also extremely important that you actively monitor your SMSF investments and transactions throughout the year – you can’t simply sit on your hands until the end of year accounts are completed.
  • You need to have a system to monitor your investments.  This is quite easy if you simply have cash and shares, but if you have a larger variety of investments, you may need another solution.  Some SMSF administrators can provide up to date consolidated online reporting 24/7 – typically at no additional cost.  Alternatively, you can use services such as Yodlee or ANZ Money Manager to get a consolidated view of all your investment accounts.

The above table can be downloaded as a handy check list – please click here (PDF) (please note it is a simplified version which needs updating 30/10/2012).

The above is a relatively comprehensive guide to getting your SMSF set up the right way.  However, chances are you will still need some help and advice along the way. I recommend you subscribe to my newsletter to enable me to keep in touch and share with you the fantastic strategies that are exclusively available to people with SMSFs.

I thank you for reading this article and I encourage you to ask any questions you may have about setting up a SMSF or any other SMSF questions by making a comment in the box below. All comments will be responded to.

If you liked this guide and would like to be informed via email when I post new articles please subscribe to my blog by clicking the button below.

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    Thank you for your insightful comments. I hope to visit your website soon.

    • http://www.evolvemysuper.com.au Kris Kitto

      Thanks Fausto!

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    • http://www.evolvemysuper.com.au Kris Kitto

      Thanks Emory!

      Many more articles in the works.

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    • http://www.evolvemysuper.com.au Kris Kitto

      Yeah – blog is kinda new so that is why you haven’t found me!

  • Pingback: Why you shouldn't set up a SMSF | EvolveMySuper()

  • Agnes

    Very informative and I learn so much from this article. I am interested in reading the article ‘Why your parents should be your best friends’ mentioned in this article but unable to locate it.  Please advise location of the article or can you email it to me ? Thanks.

    • http://www.evolvemysuper.com.au Kris_Evolved

      Hi Agnes,

      You probably can’t find the article as I probably changed my mind on writing it! When I first started writing the articles for this site, I came up with a list of 12 – 15 ‘core’ articles that I referenced back to each other. This obviously didn’t happy in this case – my apologies.

      Multiple generations within the same SMSF are a complex matter. It is a topic that deserves it’s own detailed article all by itself.

  • rob

    Hi,

    How and where can you claim back your money from setting up a company and getting a refund back from your super. Thanks.