What is a Self-Managed Super Fund?
A Self-Managed Super Fund (SMSF) is a superannuation fund that you manage yourself, offering greater control over your retirement savings. Unlike retail or industry super funds, an SMSF allows you to make investment decisions tailored to your financial goals. However, an SMSF setup also comes with significant responsibilities, including compliance with superannuation laws, maintaining financial records, lodging annual SMSF tax returns, and undergoing independent audits.
What You Need to Know Before Setting Up an SMSF
Before establishing an SMSF, it’s crucial to understand your responsibilities as a trustee. As an SMSF trustee, you are responsible for ensuring that the fund complies with superannuation laws and meets its reporting obligations. Failure to comply can result in financial penalties, loss of tax concessions, or even fund disqualification. It is highly recommended to contact a financial adviser if you are unsure whether an SMSF is right for you.
Some key aspects to consider before setting up an SMSF include:
- Time and effort required – Managing an SMSF involves ongoing administration, investment decisions, and compliance tasks.
- Legal and tax obligations – The fund must operate under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and comply with ATO regulations.
- Investment strategy – You must develop and maintain an investment strategy that aligns with your retirement goals and considers diversification, liquidity, and risk.
- Professional guidance – Engaging a specialist like an SMSF accountant or financial adviser can help you understand your obligations and ensure compliance with superannuation regulations.
Steps to Set Up an SMSF
Setting up an SMSF involves several key steps to ensure compliance and proper fund operation.
1. Decide on the Fund Structure
Choose between individual trustees or a corporate trustee structure. Each has its advantages:
- Individual Trustees – Each member is a trustee, and the fund must have between two and six trustees. This is a cost-effective option but can lead to complexities when a member leaves or passes away.
- Corporate Trustee – A company acts as the trustee, and each member is a director. This provides better legal protection, easier succession planning, and administrative flexibility but involves additional costs for company registration and compliance.
2. Contact an SMSF Accountant
An SMSF accountant can assist with establishing the SMSF trust deed, registering a corporate trustee (if applicable), and ensuring that your fund complies with all legal requirements.
3. Sign All Required Documents
All members must sign the trust deed and relevant documents to formalise the SMSF setup. This legally establishes the fund and outlines its governing rules.
4. Obtain an ESA (Electronic Service Address)
Either you or your SMSF accountant will need to register for an Electronic Service Address (ESA), which is required for receiving employer contributions and rollovers via SuperStream.
5. Register Your SMSF
Your SMSF accountant will apply for an Australian Business Number (ABN) and Tax File Number (TFN) for your newly established SMSF. This step ensures that the fund is recognised by the ATO and is eligible for tax concessions.
6. Open a Dedicated SMSF Bank Account
A separate SMSF bank account is essential for managing fund transactions, including contributions, investment income, and expenses. This ensures that SMSF assets remain separate from personal finances, maintaining compliance with ATO requirements.
7. Apply for a Superannuation Rollover
If you plan to transfer funds from an existing superannuation fund into your SMSF, a rollover request must be submitted. The rollover must be processed correctly to ensure compliance with superannuation laws and to maintain the tax-free status of retirement savings.
8. Prepare an Investment Strategy
An SMSF must have a documented investment strategy that aligns with its members’ retirement goals. This strategy should consider:
- Risk and return objectives
- Diversification of investments
- Liquidity of assets
- Ability to meet pension payments when required
- Insurance needs for members
9. Start Investing
Once the SMSF bank account is set up and funds are available, you can start making investments in line with your investment strategy. Common SMSF investments include:
- Shares and ETFs – Providing diversification and liquidity
- Property – Direct investments in residential or commercial property
- Fixed income assets – Such as bonds and term deposits
- Managed funds – Professional fund management for diversified investment exposure
10. If Investing in Property via LRBA
If your SMSF plans to invest in property using a Limited Recourse Borrowing Arrangement(LRBA), you must:
- Consult a finance broker to assess your borrowing capacity
- Contact an SMSF accountant to set up a bare trustee and bare trust, which are required legal structures for borrowing under an LRBA
- Ensure that the property complies with SMSF regulations, including the sole purpose test and borrowing restrictions
What’s Next?
Once your SMSF is established, you must ensure ongoing compliance with superannuation and taxation laws. Key obligations include:
Meeting Annual Compliance Obligations
Your SMSF must prepare and lodge an SMSF tax return annually, along with financial statements and an independent audit. Engaging a professional SMSF tax return services provider like autoSMSF can streamline this process and ensure compliance with ATO requirements.
Reviewing Binding Death Nominations
A Binding Death Benefit Nomination ensures that your superannuation savings are distributed according to your wishes upon your passing. Regularly reviewing and updating this nomination is essential for estate planning.
Considering Life Insurance
Your SMSF should consider including personal life insurance for members, such as:
- Life insurance
- Total and permanent disability (TPD) insurance
- Income protection insurance
These policies provide financial security for your dependents and can be funded through the SMSF.
Our Cost to Set Up an SMSF
Setting up and maintaining an SMSF involves costs, including:
- SMSF Setup Cost: one-time fee
- Annual Compliance, Accounting, Taxation, and Audit
Visit our services page for a full breakdown.
Why Choose autoSMSF for Your SMSF Setup?
A successful SMSF setup requires careful planning, expert guidance, and ongoing support. At autoSMSF, we specialise in superannuation accounting services to ensure compliance while helping you optimise your retirement savings. Our team of expert SMSF accountants can assist with setting up your fund, managing tax obligations, and ensuring long-term compliance with regulatory requirements.
Contact us on 1300 014 900 today – your trusted SMSF accountant – and take control of your superannuation with confidence!
