How to set up an SMSF
If 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.
five six main reasons why you should use a special purpose PTY LTD company as trustee for your SMSF:
- Administrative efficiency
- To have a single member fund
- Ability to pay lump sums rather than just a pensions
- Access to the 15% pension rebate
- 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:
|1||Check all documentation and sign it||
|2||ABN / TFN application||
|4||Rollovers / Transfers||
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.