How to Set Up a Self-Managed Superannuation Fund

Company123 offers a high-quality deed for your Self-Managed Superannuation Funds (SMSF), helping you save for retirement.
To register your new SMSF for $99 plus GST visit our website.

Since 1999, the sector has grown from around 200,000 SMSFs with $55 billion in assets to 600,000 SMSFs totalling $750 billion in assets. Today, SMSFs comprise nearly one third of Australia’s total $2.76 trillion retirement system.

SMSFs differ from other types of funds by having the members of the fund also be the trustees.
This means the members of the SMSF run it for their benefit and are responsible for complying with the super and tax laws.
More information can be found on the ATO website.

What are the Benefits of an SMSF?

Investment choice

SMSFs provide a range of investment options. Trustees can potentially access direct shares, high-yielding cash accounts, term deposits, income investments, direct property, unlisted assets, international markets, collectables and more.

Tax strategies

Like all super funds, SMSFs benefit from concessional tax rates. In the accumulation phase, tax on investment income is capped at 15 per cent; in the pension phase there is no tax payable, not even capital gains tax. Carefully considered tax strategies can help you grow your super savings and reduce tax payments as you transition to retirement.

Flexibility

SMSFs allow multiple members to run a mixture of accumulation and pension accounts. You’ll be able to adjust your investment mix as it suits you, allowing for a fast response to changes in market conditions, super rules or personal circumstances.

Transparency

SMSFs offer significant transparencies that allow trustees to align their personal goals with their investment decisions. Whether you’re passionate about property, shares or sustainable and ethical investing, SMSFs provide a platform which allows you to understand where your money is invested, with complete visibility over performance and tax treatment.

Cost

SMSF trustees must lodge an annual tax return and audit, and pay ATO fees (these are capped and not based on a percentage of your super balance). The more an SMSF grows, the more cost-effective it becomes, but the total cost of running an SMSF will depend on the related investments and any costs associated with engaging professional support.

Consolidate superannuation assets

An SMSF currently allows a trustee to combine their superannuation assets with up to three other members, such as partners or family members.
Consolidating super accounts immediately creates a larger fund balance, which increases the fund’s assets and investment opportunities – with only one set of fees.

Is a Self-Managed Super Fund the Right Choice for You?

Members and Trustees

SMSF: Can have a maximum of four members. All members are either individual trustees or directors of a corporate trustee of the fund. This means all members are involved in managing the SMSF.
Other super funds: Usually no limit on the number of members. Professional, licensed trustees are responsible for managing the fund.

Responsibility

SMSF: Trustees are expected to have knowledge of tax and super laws and must make sure their fund complies with those laws. Compliance risk is borne by the SMSF trustees, who can be personally fined if their fund breaches the law.
Other super funds: Compliance risk is borne by the professional licensed trustee.

Investments

SMSF: Trustees develop and implement the fund's investment strategy and make all investment decisions.
Other super funds: Most allow you some control over the mix and risk level of your super investments but you generally can't choose the specific assets your super will be invested in.

Insurance

SMSF: Trustees must consider whether to purchase insurance for their members. Insurance premiums may be higher than in other super funds.
Other super funds: Most offer insurance cover to members. Member insurance usually costs less as large funds can get discounted premiums.

Regulation

SMSF: Regulated by the ATO. Trustees are required to engage with us to manage their fund.
Other super funds: Regulated by the Australian Prudential Regulation Authority (APRA). Generally members don't have to engage with APRA.

Complaints/disputes

SMSF: We are not involved in resolving disputes among members. Disagreements can be resolved through alternative dispute resolution techniques or in court, at the members' own expense. There is no government compensation scheme.
Other super funds: Members have access to the Australian Financial Complaints Authority (AFCA) and may be eligible for statutory compensation.

Fraudulent conduct or theft

SMSF: No government financial assistance is available to SMSFs. Members may have legal options under Corporations Law but there is no guarantee that compensation will be awarded.
Other super funds: Members may be eligible for government financial assistance in the event of fraud or theft.

Costs, Time and Skills

You need to have the time and skills to manage your SMSF, and there are ongoing running costs.
As a trustee of an SMSF you'll be responsible for operating your fund within the law. If you don't, you may face severe penalties and your fund may suffer tax consequences.
You'll also need to make investment decisions for the SMSF, including formulating an investment strategy that you review regularly. You'll need to understand the restrictions on the investments an SMSF can make.

It costs money to set up and run an SMSF. You might find that the fees you pay for an SMSF are more than you would pay in another type of super fund. Every year that you have an SMSF you'll need to pay for an independent audit and the supervisory levy.

Most SMSFs also pay for additional help, such as:

• preparing the SMSF annual return
  
• valuations of the SMSF's assets
  
• actuarial certificates for SMSFs paying income streams (pensions)
  
• financial advice
  
• legal fees, for example if the trust deed needs to be amended
  
• assistance with fund administration
  
• insurance for members.

Setting up a SMSF

Choosing a Trustee

You can choose one of the following structures for your fund:

-up to four individual trustees
-a corporate trustee (essentially, a company acting as trustee for the fund).

Which structure is right for you?

Requirements

Individual trustees

• Two to four members.
• Each member of the fund must be a trustee, and each trustee must be a member of the fund.
• A member cannot be an employee of another member – unless they are relatives.
  
  

Corporate trustee

• One to four members.
  
• Each member of the fund must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund.
  
• A member cannot be an employee of another member – unless they are relatives.

Single-member funds requirements

Individual trustee

• There must be two trustees.
• One trustee must be a fund member.
• If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.
  
  

Corporate trustee

• The corporate trustee company can have one or two directors, but no more.
  
• The fund member must be the sole director or one of the two directors.
  
• If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.

Costs

Individual trustees

• There are no (ASIC) fees, so establishment costs and ongoing administrative requirements are less.
  
• A trustee cannot be paid for their duties or services as a trustee

Corporate trustee

• ASIC charges a fee to register a corporate trustee for the first time.
  
• There is an annual review fee, which is lower if the corporate trustee acts solely as a super fund trustee, but higher if the corporate trustee also performs another function, such as running a business.
  
• A corporate trustee cannot be paid for its services as a trustee, and directors of the corporate trustee cannot be paid for their duties or services as directors in relation to the fund

Ownership of fund assets

Individual trustees

• If an individual trustee is removed or another added, you must change the titles of the SMSF's assets. This can be costly and time-consuming.
  
• State government authorities may charge a fee for title changes.
  
• Most financial institutions also charge a fee for title changes.
  

Corporate trustee

• Recording and registering assets can be simpler, particularly for changes in membership.
  
• When a person starts or stops being a member of the SMSF, they become, or cease to be, a director of the corporate trustee.
  
• You must notify us, and ASIC of any change in director.
  
• The corporate trustee doesn't change, so the titles of the SMSF’s assets are unchanged.
  

Separation of assets

Individual trustees

• Fund assets must be in the fund's name
• Fund assets must not be combined with personal assets.

Corporate trustee

• Fund assets must be in the fund's name.
  
• Fund assets must not be combined with director's personal assets.
  
• Companies have limited liability, so a corporate trustee offers greater protection if the trustee is sued for damages.

Penalties

Individual trustees

• If super laws are breached, administrative penalties are levied on each trustee.
  
• For example, for failing to prepare financial accounts and statements, each trustee is liable for a $2,100 penalty (10 penalty units). This would amount to $8,400 if there were four trustees.
  
• The value of a penalty unit is $210.

Corporate trustee

• If super laws are breached, administrative penalties are levied on the corporate trustee.
  
• For example, for failing to prepare financial accounts and statements, a corporate trustee would be liable for a $2,100 penalty (10 penalty units).
  
• The value of a penalty unit is $210.

Succession

Individual trustees

• Where changes in trustees occur, the fund is not likely to continue to operate as usual unless an appropriate succession plan has been prepared.

Corporate trustee

• A corporate trustee continues in the event of a member's death.
  
• In the event of the death or incapacity of a member, control of an SMSF and its assets by a corporate trustee is more certain.

Appoint Your Trustee

Once you have decided on which structure if right for you, you will need to appoint a trustee.
New funds usually appoint trustees or directors under the fund’s trust deed, and Company123’s SMSF deed has provisions for the appointment, and we provide additional documentation to provide consent.

You need to ensure that the people who become trustees or directors of the SMSF:

Are eligible to be a trustee or director

• Anyone 18 years old or over can be a trustee or director of a super fund as long as they're not under a legal disability (such as mental incapacity) or a disqualified person.
• Disqualified persons include having been convicted of a dishonest offence, issued a civil penalty order, being under bankruptcy or insolvent under administration or been previously disqualified by the ATO or APRA

Understand what it means to be a trustee or director, which involves:

• acting honestly in all matters concerning the fund
  
• acting in the best interests of all fund members when you make decisions
  
• managing the fund separately from your own superannuation affairs
  
• knowing, understanding and meeting your responsibilities and obligations
  ensuring that the SMSF complies with the laws that apply to it.
     
  

All trustees and directors must:

• consent in writing to their appointment
  
• sign the Trustee declaration stating they understand their responsibilities (this must be done within 21 days of becoming a trustee or director).

You must keep these documents on file for the life of the SMSF and for 10 years after the SMSF winds up.
The ATO may impose penalties if you don't comply. All trustees and directors are bound by the trust deed and are equally responsible if its rules aren’t followed.

Creating the Trust and Trust Deed

A trust is an arrangement where a person or company (the trustee) holds assets (trust property) in trust for the benefit of others (the beneficiaries). A super fund is a special type of trust, set up and maintained for the sole purpose of providing retirement benefits to its members (the beneficiaries).

To create a trust, you need:

• trustees or directors of a corporate trustee
  
• governing rules (a trust deed)
  
• assets (an initial nominal consideration to give legal effect to the trust can be used, for example, $10 attached to the trust deed)
  
• identifiable beneficiaries (members).

A trust deed is a legal document that sets out the rules for establishing and operating your fund. It includes such things as the fund’s objectives, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.

The trust deed must be:
•    prepared by someone competent to do so as it's a legal document
•    signed and dated by all trustees
•    properly executed according to state or territory laws
•    regularly reviewed, and updated as necessary.

In terms of the SMSF trust deed, Company123 provides comprehensive deeds for $99 plus GST, prepared by a superannuation lawyer.

Registering a fund 

Once your fund is established and all trustees have been appointed (including signing the Trustee declaration), you have 60 days to register the SMSF with the ATO by applying for an Australian business number (ABN).

Before you register, you must already have:

• considered appointing professionals to help you
  
• chosen individual trustees or a corporate trustee (and created the corporate trustee if needed)
  
• appointed trustees or directors of the corporate trustee
  
• created a trust (including transferring an asset to the trust)
  
• checked that your fund is an Australian super fund.

Once you have completed these steps then you are ready to register. Obtaining an ABN is part of the registration process.

When completing the ABN application you should:

-ask for a tax file number (TFN) for your fund
-elect for your fund to be an ATO-regulated SMSF. If you don't, your fund will not receive tax concessions and the members’ employers can't claim deductions for contributions
-register for GST (if necessary).

Most SMSFs don't need to register for GST because SMSFs mainly make input-taxed sales, and these don't count towards GST turnover.
SMSFs with an annual GST turnover of more than $75,000 must register for GST. Annual GST turnover doesn't include:
contributions
interest and dividends
residential rent or income generated outside Australia.

However, it does include gross income from the lease of equipment or commercial property.

As registered tax agents, Company123 offers the service of registering an ABN for your SMSF for $70 plus GST.

Regulation

As an SMSF trustee you may need to deal with two key government agencies. These are:

Australian Taxation Office (ATO) – administering the relevant super laws for SMSFs
Australian Securities & Investments Commission (ASIC) – regulating financial services to protect consumers and manages SMSF auditor registrations.

Therefore, the ATO and ASIC are joint regulators of SMSFs.

The ATO’s Role in Regulation

The ATO assists ASIC by:

• providing SMSF data to assist superannuation sector analysis
  
• collaborating to develop publications and guidance material
  
• making referrals to ASIC if we discover potentially unlicensed advice providers, or SMSF auditors who fail to meet their obligations.

The ATO checks compliance with the law to safeguard retirement income. These regulatory activities include:

• checking you manage your fund in accordance with super laws
  
• implementing and maintaining systems to check the legal compliance
  
• taking enforcement action to correct matters when there is a breach of the law
  
• checking SMSF auditors perform their duties to the required standard.
  
• verifying a fund’s primary purpose is to pay retirement benefits to members
  
• providing information and forms to help set up and manage your fund
  
• assessing applications for early release of super on compassionate grounds.

However, the ATO does not:

• develop the law or related policy
  
• provide financial or investment advice
  
• evaluate your investment choices
  
• advise on the structure of your fund, or whether an SMSF is a sensible choice for you
  
• advise on resolving disputes between trustees
  
• recommend specific professionals, or intervene if you have a dispute with a professional.

More information about the ATO’s regulatory role can be found here.

ASIC’s Role in Regulation

ASIC is the regulator responsible for the Corporations Act 2001 and the ASIC Act 2001. These acts regulate the conduct and disclosure obligations of financial services providers (including superannuation trustees). ASIC is also responsible for administering parts of the Superannuation Industry (Supervision) Act 1993. This includes superannuation trustees.
As the conduct and disclosure regulator, ASIC is focused on the behaviours of trustees impacting consumers.

Their goals in regulation include ensuring that consumers:

• receive proper disclosure
  
• are dealt with fairly by qualified people
  
• receive useful information about their super products and investments, and
  
• can access proper complaints-handling procedures.
  

Therefore, their regulatory activities include:

• undertaking supervision and surveillance activities focused on disclosure and conduct obligations of superannuation trustees
  
• taking enforcement action in response to non-compliance with the laws administered by ASIC
  
• assessing Australian Financial Service (AFS) licence applications
  
• exercising administrative powers in relation to AFS licences and disclosure
  
• providing guidance to industry and policy advice to Government, and
  
• providing relief from financial services provisions.

Information about ASIC’s role as a regulator can be found here.

Administration and Reporting of an SMSF

You must appoint an approved SMSF auditor to audit your fund each year, not later than 45 days before you need to lodge your SMSF annual return. The auditor examines your fund's financial statements and assesses your fund's compliance with super law.

Your SMSF auditor must be:

• registered with ASIC– if they are, they will have an SMSF auditor number, which you need to provide on your annual return
  
• independent – they should not audit a fund in which they hold any financial interest, or where they have a close personal or business relationship with members or trustees.

An audit is required even if no contributions or payments are made in the financial year.
Before an SMSF auditor can start an audit, you or your professional adviser need to give them information about your accounts and transactions for the previous financial year. Any additional information requested by your SMSF auditor, in writing must be provided within 14 days.
Your auditor should advise you of any breaches of the rules. You, as trustee, should rectify any contravention as soon as possible.
Your auditor is also required to report certain contraventions to the ATO. Even if you terminated an auditor engagement or the auditor does not finish the audit, if they have identified a reportable contravention, their obligation to report to the ATO remains.

See the ATO website for more details about the reporting of SMSF.

Penalties and Non-compliance

The ATO has several courses of action when dealing with SMSF trustees who have not complied with super laws.

These include:

• Education direction
• Enforceable undertaking
• Rectification direction
• Administrative penalties
  
• Disqualification of a trustee
  
• Civil and criminal penalties
  
• Allowing the SMSF to wind up
  
• Notice of non-compliance
  
• Freezing a SMSF’s assets

More details can be found here