SMSF Setup Guide: 9 Steps for You to Follow

Australia is seeing a rise in the popularity of self-managed superannuation funds (SMSFs) as people look for more control over their retirement nest egg.

An Australian Taxation Office (ATO) SMSF quarterly statistical report released in March 2022 shows 1,135,026 members in 605,469 SMSFs. The ATO estimates $892.0 billion in assets invested in SMSFs.

However, setting up an SMSF can be complex and time-consuming, so it’s important to know what you’re getting into. We’ve prepared this short SMSF setup guide for you to help you out.

How Much Super Do You Need to Set up an SMSF?

You don’t need a specific amount of super to set up an SMSF – how much money you should have in super to make it beneficial to set up your own SMSF is also not set in stone.

The SMSF industry commissioned its own research and has come upon a ballpark figure. The research noted that SMSFs with balances less than $200,000 are expected to produce significantly lower net investment returns than funds with balances of $200,000 or more.

For its part, the Australian Securities and Investments Commission (ASIC) released an updated guide with case studies of what certain amounts would work in specific circumstances.

ASIC’s new guide (INFO 274) does not refer to a dollar threshold. It stresses considering the initial balance of an SMSF as one of several factors you should consider when creating an SMSF.

Setting Up an SMSF: 9 Steps to Follow

Having an amount in mind is a great first step. However, having full knowledge of what it takes to set up an SMSF correctly makes it eligible for tax breaks, accept contributions, and be as simple to operate as possible.

1. Consider appointing professionals to help you

It is possible to hire SMSF professionals to assist with the setup and management of a self-managed super fund. These experts include financial advisers, SMSF administrators, accountants, approved SMSF auditors, and solicitors.

Some experts even provide kits or packages, but it’s crucial to ensure the trust deed complies with current legal requirements and fulfils the fund’s and its members’ requirements.

Note that when hiring professionals, you are still responsible for ensuring the fund is set up and managed properly.

2. Choose individual trustees or a corporate trustee

When you first set it up, you will be given the option to construct your SMSF using an individual or corporate SMSF trustee structure.

When a structure is individual, each member serves as the trustee, whereas when a structure is corporate, a business serves as the trustee, and the members are directors.

While initially, an individual SMSF trustee may seem more straightforward than a corporate SMSF trustee, it may not always be your best long-term option.

The ATO has tables to show the features of each structure.

3. Appoint your trustees or directors

Members of an SMSF must be eligible trustees or directors who consent in writing to their appointment and sign the trustee declarations within 21 days. They are responsible for running the fund, making decisions in the best interests of all members, complying with laws, and may face personal penalties for non-compliance. Fund members can take legal action against a trustee or director for breaches of the trust deed.

The ATO has a complete list of eligibility and obligations of SMSF trustees and directors.

4. Create the trust and trust deed

To set up an SMSF, you need trustees or directors of a corporate trustee, a trust deed (legal document setting out the rules for the fund), and assets.

The trust deed must be prepared by a competent person, signed and dated by all trustees, and properly executed according to state or territory laws. The trust deed and superannuation laws form the fund’s governing rules.

The assets must be set aside for the benefit of members, with a nominal amount held with the trust deed if a rollover, transfer, or contribution is expected.

5. Check your fund is an Australian super fund

To qualify for tax breaks, your SMSF must be a resident-regulated super fund throughout the fiscal year.

The ATO has specific information on fund residency conditions and what to do if members go overseas.

6. Register your fund and get an ABN

You have 60 days to register the SMSF with the ATO and get an Australian Business Number (ABN) after establishing your fund and all trustees have been nominated (and signed the Trustee statement).

The SMSF and ABN registration and ATF application form are easier to fill out if you have all of the necessary information when you apply.

7. Set up a bank account

To effectively manage and handle financial transactions for your SMSF, you must open a bank account in its name. This account will be used to accept contributions, rollovers of super, and income from investments, as well as to pay for expenses and liabilities related to the fund.

8. Get an electronic service address

Starting 1 October 2021, if your SMSF receives employer contributions (excluding related-party employers), it must use SuperStream to receive contributions and associated data electronically.

SuperStream is a standard for super transactions, including contributions and rollovers, and requires an Electronic Service Address (ESA) to receive data. To use SuperStream, your SMSF must have an ESA and updated details.

An employer will need your SMSF’s ABN, bank account information, and ESA to contribute to the fund.

9. Prepare an exit strategy

Planning for the eventual wind-up of an SMSF is crucial when creating one. Unexpected events, such as when a member dies, is incapacitated, or there’s a relationship breakdown, could make the SMSF difficult to manage.

It’s crucial to have an exit strategy in place to lessen these events’ impact. This may entail giving all trustees access to documents and electronic accounts, establishing clear guidelines in the trust deed of the fund to address potential problems, urging members to designate binding death benefit nominations and enduring powers of attorney, and being aware of the likely costs associated with winding up the SMSF.

Is an SMSF right for you?

Running an SMSF is a significant responsibility and can have financial consequences if done improperly. You are responsible for making investment decisions and following super and tax laws when managing an SMSF. This requires knowledge, time, and skills to develop an investment strategy, handle administration and record-keeping, and complete financial statements and tax returns.

Get Professional SMSF Guidance from Coastal Advice Port Macquarie

Setting up an SMSF can be a complex and time-consuming process – and it’s only the first step of a long-term commitment to building wealth.

If you are ready and able to handle the majority of the SMSF’s administration and management tasks on your own, you must make sure that you stay current on market trends and legislative changes.

Also, consider getting professional advice from a professional financial adviser with specialised SMSF knowledge.

Coastal Advice Port Macquarie helps clients achieve their dream retirement through tailored financial planning and individualised guidance. We can help you with everything from financial planning for superannuation and retirement to developing investment strategies for self-managed super funds.

Call us or book online to secure your complimentary initial consultation today.

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