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How to Set Up a Self-Managed Superannuation Fund (SMSF)

Once set up properly, a Self-Managed Superannuation Fund (SMSF) offers Australians a unique opportunity to have more direct control over their retirement investments, leading to tailored investment strategies with a view to enjoying potentially higher returns. However, this control comes with the responsibility of navigating complex regulatory landscapes and making informed decisions that affect the fund’s compliance and performance. Read on to find out the steps required to set up an SMSF, including the critical role of professional guidance at every stage to ensure that the fund complies with legal requirements and operates efficiently.

Consider Professional Assistance

The complexity of managing an SMSF cannot be overstated, involving intricate knowledge of financial laws, tax regulations, and investment strategies. Engaging professionals experienced in SMSF management—from accountants and administrators to legal experts and financial advisers—can provide invaluable assistance in setting up your fund correctly from the outset. While these experts can help navigate the regulatory environment, streamline administration, and optimise investment strategies, it’s crucial to remember that the ultimate responsibility for the fund’s compliance with superannuation and tax laws lies with the trustees. Hence, professional advice should be viewed as a supportive mechanism rather than a replacement for trustees’ oversight and decision-making.

Choose & Appoint Your SMSF Trustee/s

Choosing the right trustee structure for your SMSF is fundamental to its success. The decision between appointing individual trustees or establishing a corporate trustee affects everything from the fund’s governance to its compliance burden. Individual trustee structures are common due to their simplicity and lower upfront costs, but they require that all members be trustees and vice versa, which can complicate matters if the membership changes. On the other hand, a corporate trustee, while potentially more expensive initially, offers benefits in terms of administrative ease, liability protection, and flexibility in membership changes. Regardless of the choice, engaging with SMSF professionals to discuss the implications of each option is crucial in making an informed decision that aligns with the fund’s long-term objectives.

Create the Trust and Trust Deed

Establishing an SMSF involves creating a trust, a legal entity that holds assets for the benefit of the fund’s members. This process requires careful consideration, starting with the appointment of trustees or directors and the allocation of assets to form the trust’s initial corpus. The trust deed is a critical document that outlines the rules under which the SMSF operates, including membership criteria, investment guidelines, and how benefits are paid out. Given its importance, the trust deed must be drafted with precision to ensure it complies with superannuation legislation and reflects the specific needs and objectives of the fund and its members. Regular reviews and updates to the trust deed are essential to accommodate changes in laws and the circumstances of the fund and its members.

Confirm Your SMSF’s Residency Status

The tax advantages associated with SMSFs are contingent upon the fund maintaining its status as an Australian superannuation fund throughout the financial year. This involves satisfying several residency conditions, such as the fund’s establishment in Australia, the central management and control being ordinarily based in Australia, and active members being Australian residents who hold a significant portion of the fund’s assets. Trustees should be vigilant in maintaining this status, especially if members move overseas, and seek professional advice to navigate the residency rules and avoid non-compliance.

Register Your Fund

Once your SMSF is established, registration with the Australian Taxation Office (ATO) is necessary to operate legally and access tax benefits. This process involves obtaining an Australian Business Number (ABN) and registering for a Tax File Number (TFN) for the fund, along with electing ATO regulation. Accurate and thorough completion of the registration process is crucial to avoid delays or issues with the fund’s compliance status. Trustees should ensure that all details, including the fund’s name, trustees’ information, and the initial asset allocation, are correctly recorded to streamline this process.

Set up a Bank Account for Your SMSF

An essential step in the set up of your SMSF is opening a dedicated bank account in the fund’s name. This account serves as the base for all financial transactions, including receiving contributions, managing investments, and paying out benefits. It is vital that this account is distinct from the personal accounts of trustees and any related businesses to maintain the integrity of the fund’s assets and ensure clear record-keeping for compliance purposes. The choice of banking institution and the specific account features should align with the fund’s operational needs and investment strategy, facilitating efficient management of the fund’s financial activities.

Get an Electronic Service Address

In today’s digital age, managing superannuation contributions efficiently requires an Electronic Service Address (ESA), enabling the receipt of SuperStream data. This system streamlines the processing of employer contributions and rollovers, ensuring accurate and timely updates to members’ accounts. Obtaining an ESA and ensuring it meets compliance standards for rollovers is a critical step for integrating your SMSF into the broader superannuation ecosystem. Trustees should select a compliant ESA provider and update their fund’s details with the ATO to facilitate seamless transactions.

Develop Your Exit Strategy

While the focus of setting up an SMSF is often on its creation and growth, considering its eventual wind-up is equally important. Developing a comprehensive exit strategy at the outset can safeguard the fund’s assets and members’ interests in the event of unforeseen circumstances, such as a trustee’s incapacity or death. This strategy should include provisions for the smooth transition of trustee responsibilities, access to the fund’s records and accounts, and specific wind-up clauses in the trust deed. Moreover, it’s wise to address how to handle the fund’s assets and member benefits upon winding up, ensuring that decisions are made in members’ best interests. By incorporating these considerations into the planning process, trustees can ensure a structured approach to winding up the fund, minimising stress and complexity for all involved.

How McKinley Plowman Can Help

Establishing and managing an SMSF is a significant undertaking that offers direct control and has the potential to produce attractive returns. However, it requires commitment in understanding and complying with complex regulatory requirements, as well as proactive management of the fund’s investments and administration. Engaging with the SMSF professionals at McKinley Plowman should be your first step, as we will partner with you throughout the setup, compliance, and eventual wind-up processes. This ensures your SMSF is set up correctly, complies with relevant superannuation legal requirements, and meets the retirement needs of you and any other members. If you’re ready to explore whether an SMSF is right for you, contact us today on 08 9325 2411 (Perth), 08 9301 2200 (Joondalup), or via our website.

written by:

Jojo Rollerson

With her career in accounting spanning nearly two decades, Jojo brings to the MP+ Self-Managed Superannuation team extensive industry experience and a passion for industry-leading SMSF Services. Jojo and her team of accounting professionals manage clients’ self-managed superannuation fund affairs so they have the time to enjoy the things they would rather be doing! She enjoys giving clients peace of mind that their super is in the right hands, and has an excellent track record in turning complex superannuation situations into fantastic outcomes for her clients.

Outside of the office, Jojo loves travel, food, cooking, reading, movies, and a nice walk.