The popularity of self-managed super funds has continued to rise since the global financial crisis (GFC) in 2008. The increasing lack of confidence in super fund managers in combination with the desire of wanting to be in control your own financial destiny has resulted in a huge rise in the number of Australians deciding to manage their own super funds.    

Self-Managed Super Funds (SMSF) are currently the fastest and largest segment of Australia’s ever-growing superannuation industry. The industry is three times bigger than it was five years ago.   

A key reason for the rising growth of self-managed super funds is the fact that they are relatively low cost.  SMSF are an attractive option for many Australians wanting to take greater control of their retirement outcomes but it is important to take a few things into consider to see if SMSF’s are right for you and your living situation. 

What is an SMSF 

A self-managed superannuation fund is a do-it-yourself (DIY) superannuation fund of one to four members where each member acts as a trustee of the fund; this means all members must be trustees and all trustees must be members. Single member funds require two individuals as trustees or a single company as a corporate trustee. This is a huge contrast to the majority of Australians who put their superannuation savings into a retail or industry superfund where it’s pooled with other members super and professionally managed by the trustees of the fund.

There are many advantages if you decide to establish a SMSF such as;

  • You are the boss of your fund and you therefore have control over how funds are invested
  • asset protection advantages
  • reduced tax rates
  • better management and flexibility of contribution levels and methods
  • control over the types and level of insurance held within the fun
  • large flexibility of investment types
  • significant control over retirement and death benefits
  • personal responsibility and accountability for investment performance
  • estate planning strategies and control

Although there are many positives to managing your own super, it is important to be aware that it is a massive responsibility. There are strict rules that govern what you can do with your SMSF, how you are allowed to invest the funds and when you can access them. By establishing an SMSF, you are also responsible for maintaining records and reporting regularly to the Australian Tax Office (ATO).

Deciding to Set Up An SMSF

Setting up and operating an SMSF is a significant financial decision. After all, the responsibility for running the fund and complying with the law rests solely with the trustees. Although SMSF’s are great for some people, they aren’t for everyone. Successfully managing a super fund on your own takes time, skill, money and knowledge. So, before you go ahead and set up an SMFS it is crucial to understand what is involved in managing your own fund and what it means to be a trustee.

On top of having the time, skills and knowledge to manage your own super you also need to know if you have the assets and money. You should also compare the costs and benefits of running an SMSF with those of other retirement saving options. You also need to make sure you are setting up the fund solely to pay retirement benefits to members.

An SMSF is just one way to save for retirement and manage your super. You should consider multiple options before choosing to make a final decision

Preparing to Set Up Your Fund

Upon deciding to set up an SMSF you will need to decide on the type of trustee for your fund (a company or up to four individuals). You will also need to make you sure that you and the other members are all eligible to be a trustee. You also need to check the residency requirements your fund needs to meet to be a complying fund and to receive tax concessions.

Once you understand how you can structure your fund, you need to decide on the type of trustee you will use, you can choose either a corporate trustee or up to four individual trustees.

A corporate trustee is a company incorporated under the law that acts as a trustee for all the fund. To be an SMSF, all directors of the company are required to be members and all members must be directors of the company. If you already have a company, you might choose to use it as a trustee. Your choice of trustee will make a difference to the way you administer your fund and the types of benefits it can pay, so you need to make sure it suits your personal and professional situations.

A company can’t be a trustee if one of the following applies:

  • The responsible officer of the company such as a director, secretary or executive officer is a disqualified person.
  • They are a receiver, or if an official manager or provisional liquidator has been appointed to the company
  • Action has started to wind up the company.

Getting Your Fund Started

  • Obtaining a Trust Deed

All SMSFs require a legal document called a “Trust Deed” to be drawn up by a qualified solicitor or accountant. The Trust Deed maps out the rules for setting up and operating the fund. These details in addition with the superannuation laws, from the governing rules of the SMSF. Typically, the Trust Deed includes the following details:

  • Members of the fund which are known as the “trustees”
  • The trustee’s responsibilities
  • The goals of the fund
  • How benefits will be managed and paid out to the trustees
  • How professional advisors should be selected and employed by the fund

It important to make sure the Trust Deed is correctly tailored to the objectives and needs of its members, and is importantly drafted to meet legal requirements. Make sure the Trust Deed is regularly reviewed and updated.

  • Appointment of Trustees

The second step is to formally appoint all the trustees under the funds Trust Deed. You are allowed up to four individual members, or a corporate trustee where a company is set up to act as the trustee of the fund.

In regards to a corporate trustee, all members of the fund must also be directors of the company. All trustees (or directors for corporate trustees) must consent in writing to being appointed and these records need to be kept for at least a duration of ten years.

Generally speaking anyone over the age of 18 who doesn’t have a legal disability is eligible to be a trustee. A legally disability is a person who is bankrupt. Individuals under the age of 18 or who have a mental impairment are ineligible.

Individuals are unable to be named as trustees if the have:

  • Ever been convicted of an offense in relation to dishonesty.
  • They have been subject to a civil penalty order under the super laws
  • They are considered insolvent under administration
  • They are an undischarged bankrupt
  • They have been disqualified by a regulator
  • Holding Fund Assets

To be legally established, your SMSF must hold assets. The trustees of the fund must hold assets in trust for the benefit of the fund’s members. Usually an SMSF is established by making some form of contribution to the fund when the Trust Deed is executed.

A contribution can be transfer of any assets such as cash or shares. Assets must be recorded in a way that they are distinguished as separate to personal or business assets and are clearly identified as being owned by the fund.

Assets that aren’t money are required to held in the name of the individual trustees or as the corporate trustee as trustees for the fund.

  • Signing a Trustee Declaration

New trustees or new directors of a corporate trustee are required to sign a declaration within 21 days of being appointed a trustee or director. By signing the Trustee Declaration, you’re declaring that you understand your responsibilities as a trustee or director of the SMSF.

  • Registration with the ATO

After the fund has officially been legally established and all the trustees have signed the Trustee Declaration, the fund must be registered with the Australian Tax Office (ATO).

In order for the fund to comply and receive tax concessions, you must elect for it to be regulated and to comply with the super laws. This election needs to be completed within 60 days of the establishment of the SMSF. Generally, the fund is taken to be established when the Trust Deed has been signed and the first contribution is made to the fund.

You must also obtain a Tax File Number (TFN) and Australian Business Number (ABN) which is allocated by the ATO to all funds that are registered via the ATO.

You will also need to register for GST where its annual turnover exceeds $75,000. Your annual turnover includes gross income from the lease of equipment or commercial property. Your fund must have an ABN in order for it be eligible to register for GST.

  • Open a bank account

You must open a bank account under your funds name in order to manage the funds operations and to accept cash contributions and rollovers of super benefits. All contributions and rollovers are deposited into the super funds account. Following this process, the money in the fund is invest and according to the fund’s investment strategy and utilised to pay for the fund’s liabilities and finances. All earnings on the fund’s investments are also credited to the funds account.