You’ll need professional advice before you set up your SMSF, during its establishment and while it’s operating. If your SMSF is not set up properly, it may cause significant issues in the future.
10 Steps to setting up an SMSF
Step 1 Decide how many members
SMSFs can have up to four members. Each member must also be a trustee, or if a corporate trustee is appointed, each member must be a director of the corporate trustee. Trustees manage the fund while members receive the benefits.
Step 2 Choose a trustee structure
A SMSF is a type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members. You have two choices for the trustee structure:
- Individual trustees where each trustee is also a member of the SMSF; or
- Corporate trustee where you create a company to be the trustee, with each member of the SMSF as a director of that company.
If you choose a corporate trustee, you’ll need to decide on a company name and register it with ASIC. You and any other members will be the company’s directors and the corporate trustee’s sole purpose will be to run the SMSF. If you are the only member (single member SMSF), then you can be the sole director of the corporate trustee.
If you choose the individual trustee path and you are the only member, you will need to find another person to be a trustee. This person can be related to you, but they can’t be your employer (unless they are related to you).
You must make sure that all members are eligible to be a trustee. As a general rule, all members need to be over the age of 18 years to be a trustee, and not under a legal disability (e.g. mentally impaired or bankrupt) or be a disqualified person.
Also, a trustee cannot be paid for carrying out the duties or services as a trustee.
Step 3 Get a trust deed
The trust deed sets out the rules for your SMSF. The deed should be prepared by a qualified legal practitioner and be signed and dated by you and any other trustee(s). SMSF administrators and other specialist companies can also help with this step.
Step 4 Sign a trustee declaration
The law requires each trustee to sign a declaration to show they understand their responsibilities. This must be done within 21 days of becoming a SMSF trustee or a director of a SMSF corporate trustee. The document must be kept for at least 10 years. You can get the form from the Australian Taxation Office (ATO).
Step 5 Elect for the SMSF to be ‘regulated’
You must elect for the SMSF to be ‘regulated’ within 60 days of set-up. This notice is irrevocable and advises the ATO that the SMSF will be eligible for tax benefits. This step also involves getting:
- a Tax File Number (TFN) for your SMSF;
- an Australian Business Number; and
- if required, registered for GST (this is optional).
Step 6 Nominate members and record each member’s TFN
You must nominate yourself to be a member of the fund, and every other member (eg your spouse) must also lodge a nomination. The trustees must meet and approve each application. While you are effectively approving your own application, it is a formal process that must be completed and minutes of the meeting must be recorded. The trustees must also record tax file numbers for each member.
Step 7 Open a bank account
You must open a bank account in your SMSF’s name to accept contributions, rollovers of super benefits and investment earnings, and also to pay the fund’s expenses. The SMSF’s assets must be kept separate from your personal assets.
Step 8 Create and implement an investment strategy
Before you start making investments, you need to decide an investment strategy that takes the needs of all members into account. You’ll want to consider the fund’s investment objectives, how much risk you are willing to take, how much income you need, the type of assets you would like to invest in, diversification and how quickly you can sell assets (liquidity). You also need to consider if members of your SMSF need insurance. Write down the strategy and keep a copy of it.
Once you have agreed the fund’s investment strategy, you then need to implement it.
Step 9 Choose your service providers
You’re likely to need the help of an accountant, possibly a lawyer, and most definitely an auditor. Instead of an accountant, you may like to appoint a specialist SMSF administrator to take care of record keeping, member statements, financial accounts and the fund’s annual return. You may also need a valuer to assess niche assets and, potentially, a financial adviser and an actuary if your fund is paying pensions.
Step 10 Appoint an auditor
You can choose to do everything in Step 9 yourself except carry out your own audit, so you will need to appoint an auditor that is registered as an approved SMSF Auditor with ASIC. You need to appoint an auditor at least 30 days before the due date of the SMSF’s annual return. You can’t lodge the annual return with the ATO without completing the audit.