It’s not difficult or time consuming to set up a self-managed super fund. However, as the trustee of your fund, you’ll need to make sure your SMSF complies with laws and regulations and therefore you’ll likely need some expert assistance. The good news is there are many organisations that can help you through each of the following steps. See our directory of service providers for a list of these firms.

Step 1: Establish a trust structure

SMSFs operate under a ‘trust’ structure. There are two basic structures for a trust: a trust with individual trustee(s); and a trust with a corporate trustee. The merits of the two structures are set out in The trustee.

If you plan to use a corporate trustee, you will need to form a special purpose company to run the fund (usually a ‘proprietary limited’ company), develop the company’s constitution, and register the company with the Australian Securities and Investment Commission. The constitution of the company should be drafted so that its sole purpose is to be the trustee of the SMSF. It will usually contain a clause along the following lines:

“The sole purpose of the Company is that of being the Trustee of a Self Managed Superannuation Fund and if any provisions of this Constitution is in conflict with a provision of the Superannuation Industry (Supervision) Act or a regulation made pursuant to that Act, the provision of that Act prevails. The Company must not be the trustee of any other superannuation fund or engage in any business.”

Step 2: Obtain a trust deed

The trust deed sets out the rules and conditions under which the fund will operate. The deed should be prepared by qualified legal practitioners and signed and dated by you and any other trustee. The trust deed deals with issues such as:

• Who can be a member of the fund
• Trustees right to amend the trust deed
• Who can make contributions to the fund, and what types of contributions
• Ability of members to split concessional contributions with their spouse
• The types of assets the fund can acquire
• When and how benefits can be paid
• Acceptance of binding death benefit nominations
• To whom death benefits can be paid
• Rules (if applicable) to establish and administer fund reserves
• When and how the fund should be wound up

Step 3: Sign a trustee declaration

The law requires each trustee or director of a corporate trustee to sign a trustee declaration within 21 days of becoming an SMSF trustee or a director of an SMSF corporate trustee. The completed declaration must be held for at least 10 years and made available to the Australian Taxation Office on request.

The declaration affirms the trustee’s understanding of their duties and responsibilities, the ‘sole purpose’ of the fund, the investment restrictions, acceptance of contributions and paying benefits, and their administrative and compliance obligations. A trustee declaration can be obtained from the ATO by clicking here.

Step 4: Elect for the fund to be regulated

You must elect for the fund to be regulated within 60 days of the fund being legally established. This notice is non-revocable and advises the ATO that the fund will be entitled to concessional taxation treatment.

This step also involves:

• Obtaining a Tax File Number (TFN)
• Obtaining an Australian Business Number (ABN)
• Optionally, registering for GST. Most SMSFs will not need to register for GST

This step is easy to complete and can be done by either of the following two ways:

• Going online to the Australian Business Register at www.abr.gov.au; or
• Completing the ‘ABN registration for superannuation entities’ form NAT 2944 available from the ATO by clicking here.

An SMSF must register for GST if the fund has taxable supplies greater than $75,000. The most common situation where this occurs is where the fund leases a commercial property (that is, the fund owns the property and leases it to another party). Due to the additional compliance costs in recording, reporting and paying GST, the vast majority of SMSFs do not register for GST. Your accountant can tell you whether or not you should register.

Step 5: Nominate members and record each member’s TFN

When you create an SMSF, you become the trustee responsible for the care of the fund. But a fund also needs a member to receive the benefits. Therefore you need to nominate yourself as a member. If you share your fund with another trustee, such as your spouse, this person also needs to become a member. In the case of SMSFs, trustees and members are essentially the same people, but the roles are vastly different and referred to separately.
For a corporate trustee, the members will be made up of the directors of the company. Members should complete an application to join the newly created fund.

You must also obtain and record tax file numbers for each member. If the member has not quoted their TFN, the fund can’t accept certain contributions paid on their behalf (personal and spouse contributions), and the fund will pay extra tax on concessional contributions made to the member’s account (like employer contributions, salary sacrifice and personal contributions where the member claims a tax deduction).

Step 6: Open a bank account

Your SMSF will need a bank account to accept contributions, rollovers of super benefits and investment earnings. The fund’s assets must be kept separate from those of the trustees – for example, your personal bank account – so opening a separate bank account for the fund is non-negotiable. The account can be with a bank, a building society, credit union or even a cash management trust, provided it meets the requirements set out in the fund’s investment strategy.

Step 7: Prepare an investment strategy

Section 52 of the SIS Act requires trustees to ‘formulate and give effect to’ an investment strategy for the fund, which takes into account all the fund’s circumstances, including, but not limited to:

• Risk and return
• Diversification
• Liquidity
• The ability of the fund to discharge its liabilities

An investment strategy is a written plan that sets out the fund’s investment objectives and how you plan to achieve them. There is no prescribed format for an investment strategy. However, it’s important that the strategy reflects your circumstances and accordingly takes on the appropriate level of risk. Click here for a sample investment strategy or have a financial planner help you prepare one.

TIP: Your investment strategy should be in writing so you can prove that your investment decisions comply with it and the super laws. It should also be reviewed on a regular basis – preferably at least once every 12 months.

Step 8: Select and appoint service providers

Establishing and maintaining an SMSF requires you to carry out a range of duties for which you’ll need the help of service providers. Some of these will be on a one-off basis when the fund is set up, while others will be on a regular or annual basis. Service providers include:

• Accountants and auditors
• SMSF administration providers
• Financial advisers and planners
• Qualified valuers (for niche and specialised assets)
• Actuaries
• Software providers

There is some overlap in roles between the service providers, so it’s not always possible to categorise the tasks by provider group. For example, many accountants will help with the administration of the fund, such as preparing annual member statements, while many administration providers will prepare the fund’s tax return. The key functions you or a service provider will have to manage include:

• Preparation and review of the investment strategy
• Asset class selection, review and advice
• Investment selection, review and advice
• Establishment and maintenance of fund records
• Account for contributions, rollovers and benefit payments
• Account for asset purchases, sales, investment income and expenses
• Prepare the financial accounts of the fund
• Prepare annual tax return
• Remit tax payable, including any PAYG instalments,
• Prepare member statements
• Arrange for an annual compliance and financial audit
• Update and amend trust deed (if required)

Step 9: Appoint an auditor

You can do everything in the above list to fulfill your requirements as a trustee except carry out your own audit. For this, you must appoint an approved SMSF Auditor who is registered with ASIC.

You are required to appoint an approved auditor at least 30 days before the due date of the SMSF’s annual return. This is October 31 for existing funds and February 28 for new funds, although tax agents may have later dates. Your auditor has obligations, which include:

• To provide you with an audit report before the due date of the SMSF’s annual return
• To raise with you and the ATO any concerns about your fund’s financial position or its compliance with the super laws
• To report to the ATO directly on certain contraventions of the super laws

As you can’t lodge the annual return to the ATO without completing the audit, it’s important that the preparation of the financial accounts and the appointment of the auditor are completed within 90 days of the end of the financial year.