How to set up a self-managed super fund

Eclipse

A self-managed super fund (SMSF) can be the key to a new life of financial independence and freedom. Allowing you greater control over your retirement savings and how they're grown, SMSFs fit naturally with Aussies' DIY spirit – the idea that doing a job yourself is often the best way to do it right. 

And they're growing too. According to the Australian Taxation Office (ATO), the number of SMSFs has risen by 29 per cent over the last five years, reaching 534,000. 

It seems people are setting up SMSFs left and right. But before you can follow suit, you need to know some of the basics. 

Choosing a structure for your SMSF

The first thing you need to do is decide on a trustee structure for your SMSF. You can have a single-member fund made up of only yourself, or – as is more common – you can have multiple members. In either case, you need to pick between a individual or corporate trustee structure, the latter basically being a company that will act as a trustee. 

If you choose individual trustees, you can only have a maximum of four. You'll need to check if all of these individuals (who are also members of the fund) are actually eligible to be trustees. Typically, this means they're: 

  • over 18 years old
  • not mentally incapacitated or bankrupt
  • have not been penalised or convicted for dishonest behaviour. 

Then, you can start your fund. 

Launching your SMSF

The next major step is to obtain a trust deed – the legal document which sets out the governing rules for your SMSF. It should be prepared by a well-qualified professional, such as a lawyer who works in this area, and must be uniquely customised to fit with your fund's particular goals and member requirements, as well as super laws. 

Once you've appointed the trustees for the fund, they will need to sign and date the trust deed. They will also need to make a contribution to the fund to officially and legally establish the fund. This could simply mean transferring assets into it, or it could simply mean plain old money. 

Additionally, trustees will need to sign a trustee declaration within 21 days of becoming trustees. This can be obtained from the ATO website, and must be kept after being signed. The SMSF will also need to be registered with the ATO through the Australian Business Register, which will involve providing each member's tax file number. 

If the SMSF's annual turnover is more than $75,000, you will also need to register it for GST. Contributions, rent or income generated outside Australia and gross income from financial supplies doesn't count toward this turnover. 

Finally, you'll need to open a bank account specifically in your fund's name, which will receive contributions and investment income, pay expenses associated with running the fund and pay out members' benefits. You'll need a separate record of each member's entitlements within this account. 

You've now officially set up your SMSF. But remember, there's still more to do after this. You'll have to come up with an investment strategy for your fund, appoint professionals for tasks such as the annual audit and set up a system for record-keeping. Most SMSF clients we see have used their accountants to assist in making sure everything is set up and run correctly – you don't want to breach the rules as the penalties are severe.

Good luck!