If you have decided to go down the SMSF route, there are a number of things you need to know.
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Why set up a SMSF?
A SMSF is generally set up to give the members greater control over their retirement savings and investments.
It’s important to note that a Self Managed Super Fund is not suitable for everyone – it requires a large amount of time and skill in order to run it effectively.
Before setting up a fund it is important to consider whether you have the appropriate amount of time, skill and knowledge to successfully manage the fund.
You should also consider:
The costs of establishing and running a DIY Super Fund compared to other superannuation funds
If you have the required amount of funds – it is generally advisable you have at least $200,000 to invest in your super fund.
Requirements and Obligations
When you set up your fund, you will have a number of legal, moral and ethical obligations you need to comply with:
Trustee Obligations:
- Ensuring the fund has been established to provide retirement benefits to members and not for any other purpose.
- Making sure the fund provides retirement benefits for members
- Preparation of investment strategy
- To accept contributions from the other members or their employers as well as paying any benefits.
- Notifying the ATO and insurance companies within 28 days of changes to members, trustees or directors
- Making sure an auditor is appointed to the fund to audit the funds activities each financial year
- Keeping proper records and making sure annual returns are lodged and other administrative tasks are done as required
How do I establish a Self Managed Super Fund
Before you set up your own fund, you need to consider the above information regarding your obligations as a trustee and the time, knowledge, skills and funds required.
If you do decide that you want to establish an SMSF, you have a number of options when it comes to the structure:
1. Choice of Trustee
2. Setting up a trust
3. Registering your fund
4. Opening bank account
You will need to:
Decide the type of trustee you want – either an individual trustee or a corporate trustee
Ensure that you, other members and the director of a corporate trustee are eligible to be trustees and accept the responsibilities of being a trustee
Make sure your fund meets residency requirements
Choice of Trustee
Individual Trustee
An individual Trustee is when one or all of the members of the fund are appointed as the trustee. Generally all members of the fund will be required to be trustees.
The following must apply when an individual trustee is appointed in order for the fund to comply as an SMSF:
- The fund can only have four or fewer members
- Each member must be a trustee and each trustee must be a member
- Members of the fund are not allowed to work for one another. Exceptions are made when the members are related.
- No member of the fund works for another member except in the case where they are related
- Trustees cannot be paid to perform their duties as trustees
Corporate Trustee
A corporate trustee is an incorporated company under law that acts as a trustee. It can be an already established company that you have set up or you can set up a new company.
Who can be a trustee?
A trustee can be anyone over the age of 18 who is not legally disabled (including by bankruptcy or mental incapacity) – except in the case where they are a disqualified person.
Setting up the trust:
As a Self Managed Super Fund is a type of trust, it needs to be set up like any other trust would be. In order to create a trust, you must have:
- The intention to create a trust
- Trustees appointed
- A trust deed created
- Assets (to go into the trust)
- Identifiable beneficiaries
A disqualified person can be:
- A person convicted of an offence involving dishonesty
- A person subjected to a civil penalty under super laws
- A person who is insolvent under administration
- An undischarged bankrupt
- Disqualified by a regulator
A company is not allowed to act as a corporate trustee if:
- An officer of the company (director, secretary or executive officer) is a disqualified person
- The company has appointed receivers, liquidators or official managers
- The company is being wound up
Once the trust deed is executed and funds are contributed to the fund in the form of money or the transfer of assets, the fund is seen as being established.
Fund assets need to be held in the name of the fund and not in the individual name of the trustee or members.
Registering your fund
Once the trust deed has been executed and assets have been contributed, the fund must be registered with the Australian Business Registerer (ABR), who will conduct a risk assessment of your fund as well as all individual members. They may also ask for additional documentation.
The ABR will also provide you with a Tax File Number and Australian Business Number (ABN) for your fund as well as registering your fund for GST.
Opening a bank account
You are required to open a bank account in your SMSF’s name so you can accept cash contributions and rollovers as well managing your fund’s operations.
Any contributions, investment earnings or benefits made into or out of the bank account by members needs to be recorded.
Investment Strategy
A Self Managed Super Fund investment strategy must be prepared before you start making any investment. The investment strategy:
When you are preparing your investment strategy you should consider:
- Investing in a range of assets including cash, property, shares etc
- Risk and return of investments
- How fast assets within the fund can be converted into cash
- The funds ability to pay benefits
- Whether or not you need to hold insurance cover within the fund
- The individual needs of the members of the fund