Setting up a Self Managed Super Fund

Once you have decided to set up a self-managed super fund, there are a range of steps that need to be taken to get it started. You also need to make some important decisions about how to structure and operate your fund.

What is an SMSF ‘Trustee’?

When setting up a self-managed super fund, you take on the role of either a trustee or director of a company that acts as the trustee of your fund. A trustee is a person or company that holds and invests the fund’s assets for the benefit of each member’s retirement. You have the choice when establishing a self-managed super fund to have individual trustees or appoint a company to act as the trustee. More than 70% of all self-managed super funds are established with individual trustees, with more recent statistics showing only 10% of new funds being setup with a corporate trustee.

It is a commonly held view that a corporate trustee is a far superior trustee structure within a SMSF, which was recently supported in the recommendations to government in the Super System Review. Download our fact sheet, “Choosing a Trustee structure for your SMSF“.

SMSF Trustee Responsibilities

As a trustee or director, you are responsible for running the fund and making decisions that affect your retirement interests and that of each member of your self managed super fund. Therefore, you must act in the best interests of all fund members when making decisions, ensuring that the fund is managed separately from your own affairs and that the money in the fund is only accessed when the law allows you to do so, such as in retirement.

There are some important considerations when setting up a self-managed super fund, including deciding on whether each member will act as individual trustees or a company act as trustee in which you and the other members will be directors. You also need to ensure that you are eligible to act as a trustee, therefore you can’t be a bankrupt, and someone charged with a dishonesty offence or have been subject to superannuation law penalties. Furthermore, you must ensure that the fund meets the residency requirements to be a complying fund and receive tax concessions.

Read more about SMSF Trustee Roles & Responsibilities.

How many members can a Self Managed Super Fund have?

A self managed super fund is allowed up to 4 members, with each member required to be a fund trustee or director. This requirement is to promote engagement and equal responsibility amongst all members of the fund. In addition:

- NO member can be an employee of another member, unless they are related and,

- NO trustee can be paid for their duties or services as being a trustee.

It is possible to setup a self managed super fund as a single member fund. Where the fund has a corporate trustee, you can also be the sole director of a trustee company. Alternatively you must be only one of two directors ensuring that the other director is either related to you or is not employed by you. Where you wish to have individual trustees, you must have two trustees in which in addition to you, must include a person you are related to or is not employed by you.

The Process to setup an SMSF

The setup of a SMSF requires a range of steps to be completed to start operating your fund.

1. Trust Deed: The first step is to arrange for a Trust Deed to create the fund. This is the book of rules that will govern its operation and will include rules around acting as a trustee, membership, contributions, benefits and anything else to do with the fund. The preparation of the book of rules is done by a lawyer who will draft the necessary rules for you.

2. Fund Trustees: The fund will also be required to appoint fund trustees, which must be consented to in writing. You as a trustee will need to sign a trustee declaration within 21 days of becoming a trustee or director, stating that you understand your duties and responsibilities as a fund trustee or director of the corporate trustee.

3. Tax Requirements: You will need to complete for various registrations with the Australian Taxation Office to not only become regulated, which must be done within 60 days, but to also apply for a Tax File Number, Australian Business Number, along with potentially requiring additional registrations including GST and Pay-As-You-Go withholding.

4. Fund Membership: You must apply to become a member of the fund and once accepted have the fund record your tax file number to ensure that it can accept certain contributions. You will be required to setup a bank account for your self-managed super fund to manage the fund’s operations including accepting contributions, making investments, receiving investment income and pay all fund expenses and liabilities. It is important that the super fund bank account is kept separate to any individual or business bank accounts that you may have.

5. SMSF Investment Strategy: Once the fund is legally established, it is important that an SMSF investment strategy is prepared that sets out the investment objectives and how you plan to achieve them, having regard to issues including diversification, risk and likely return from investments, liquidity of fund assets, the ability to pay benefits as and when they fall due, such as in retirement and generally meeting the member’s needs and circumstances. You may wish to engage a licensed financial adviser to help you prepare an investment strategy, but you and the other trustees are responsible for managing the fund’s investments. It is important that an investment strategy is documented to ensure that you can evidence you investment decisions and show that they comply with the law.

6. Get Professional Advice: In addition, as the fund gets underway, you should give appropriate consideration to the appointment of professionals including an approved auditor, accountant or fund administrator, lawyer and financial adviser. They will be able to assist in a variety of areas including the ongoing reporting requirements, insurance needs of the members and any death benefit nomination which sets out who receives your super benefits in the event of death.

Setting up a self managed super fund gives you the opportunity to actively manage your own super and make your own investment choices, but with it comes responsibility. Regardless of whether someone takes a more active role within the fund, each trustee or director is equally responsible.

Need more information on Setting up a Self Managed Super Fund?

Further information on setting up a self managed super fund and other trustee education articles, booklets, webinars and videos are available for free for SMSF Academy Members - read more about SMSF Academy Trustee Membership details here.

Article – Setting up a SMSF