Setting up a SMSF
When deciding to set up a SMSF, there are a number of things you should consider:
- Do you have the time, knowledge and skill to manage your own super fund, as well as the assets and money to make the fund viable
- Have you compared the costs and benefits of running a SMSF with those of other retirement saving options
- Are you setting up the fund solely to pay retirement benefits to members or the members' dependants if the members die
- Do you understand what's involved in managing your own fund and what it means to be a trustee
As all SMSFs are trusts, there are certain steps you must follow under trust law to set up your fund correctly. These can be summarised in four key steps:
- Establish the trust
You need to obtain a trust deed that sets out the rules for establishing and operating your fund. The trust deed details the powers, duties and responsibilities of the fund's trustees; the rights of the members; and how the SMSF must be operated.
- Register with the ATO
Once your SMSF is legally established (by executing the trust deed and setting aside assets for the benefit of members) and all trustees have signed a trustee declaration, you must register your fund with the ATO. Once your SMSF has been registered with the ATO, a TFN and ABN will be allocated to the fund. Your SMSF may also need to be registered for GST.
- Open a bank account
You need to open a bank account in the name of your SMSF to manage the fund's operations and to accept cash contributions and rollovers of super benefits. Contributions and rollovers are deposited into the fund's account.
- Prepare an investment strategy
Before you start making investments, you must prepare an investment strategy. Your investment strategy should be in writing so you can show your investment decisions comply with it and the super laws.
While there is no prescribed format for the investment strategy, it should give regard to:
- maximising returns to members having regard to the risk associated with each investment,
- diversification across asset classes such as shares, property and fixed interest, and
- the requirements to pay benefits, tax and costs of the fund.
Costs of setting up and running an SMSF
To establish a viable SMSF that's competitive with large funds you'll need around $200,000 in super savings. Your ongoing costs will be around $2,000 to run a median-sized fund each year, including $180 each year for an annual supervisory levy.
There can be a big variation in the cost of setting up and running a fund. It depends on the cost of the professional accounting services you use and the cost of tax, audit and legal advice you obtain to run the fund.