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      Setting up a Self Managed Super Fund 

1. Purchase a Trust Deed.

2. Appoint the Trustee/s of the Self Managed Superannuation Fund (SMSF).

3. Elect to be a regulated fund with the ATO.

4. Select Members of the fund.

5. Prepare the Investment Strategy of the Fund.

6. Applications made for a Tax File Number and Australian Business Number.

7. Bank Account is opened in the name of the Fund.

1. Purchase a Trust Deed

The trust deed of a SMSF evidences the existence of the fund and documents its governing rules. The drafting of a SMSF trust deed is arguably the most important part of setting up a SMSF, as the terms of the trust deed will go a long way towards determining the future direction and administration of the fund, and whether the fund is likely to achieve the goals and objectives of its members. It follows that this step should be taken with some care. The Deed will need to be compliant with the ATO and SIS Rules and will need to be regularly monitored for changes in the laws.

A SMSF trust deed may need to be stamped for state duty purposes.   Enquiries should be made with the relevant State Revenue Office. 

2. Appoint the Trustee/s of the SMSF

Given the restrictions placed on who can be the trustee of a SMSF (except in the case of single member funds*, only members can be individual trustees or directors of a corporate trustee), the important decision is whether to have individual trustees or a corporate trustee.

With a Corporate Trustee there is no confusion between superannuation fund assets held by the company on trust, with personal assets of the members and more importantly it is easier to deal with membership changes i.e. you only need to change the directorship of the company, not title to all the fund's assets.

With Individual Trustee/s the expense associated with establishing and maintaining a corporate trustee is not required, however the ASIC charge for the lodgment of the annual return is only $40 for the corporate trustee of a SMSF whereas for any other private company it is $212.

At GGA we favor the Corporate Trustee as we are dealing with clients who have a long term perspective and have a number of Investment assets. Therefore they are not confused by who owns their investments and allows for the smooth introduction of other family members into the fund. 

*For a single member fund, it is required to have a corporate trustee with the member as the sole director. It is not possible for a single member to be the sole individual trustee for their own fund.

3. Elect to be a regulated fund with the ATO

Only regulated Self Managed Super Funds can benefit from the concessional income tax treatment that goes along with being a complying superannuation fund.

A fund must elect to be regulated using the 'Application to register for Superannuation Entities' available on www.ato.gov.au (s19). The form must be lodged within 60 days of establishment of the fund (s42(1AA)).

4. Select Members of the fund

Prospective Members are required to complete application forms to join a new SMSF. There must be less than 5 members in a SMSF.

5. Prepare the Investment Strategy of the Fund

Given that a SMSF's primary function is to invest the superannuation moneys of its members, it cannot commence operations until it has an investment strategy.

Section 52(2)(f) of the SIS Act requires a SMSF to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the fund including, but not limited to the following:

• the risk involved in making, holding and realising, the fund's investments having regard to its objectives and expected cash flow requirements;

• the composition of the fund's investments as a whole including the extent to which the investments are diverse or involve the fund in being exposed to risks from inadequate diversification;

• the knowledge of the investor in the markets and asset classes of the investments;

• the liquidity of the fund's investments having regard to its expected cash flow requirements; and

• the ability of the fund to meet its existing and prospective liabilities.

An investment strategy should be reviewed regularly.

6. Applications made for a Tax File Number and Australian Business Number

A SMSF must apply to the ATO for a Tax File Number and an Australian Business Number and register for GST where necessary. The same form used when electing to be regulated is used for these purposes as well i.e. 'Application to register for Superannuation Entities'.

A SMSF is only required to register for GST if its annual turnover exceeds *$75,000. In any other case a SMSF is able to register voluntarily.

*Note: The following amounts are not included for the purposes of determining whether a SMSF has annual turnover in excess of $75,000:

• contributions received by the fund;

• dividends;

• interest;

• unit trust distributions;

• death and/or total and permanent disability payments;

• bank deposits or loans

• amounts relating to acquiring or disposing of securities such as shares, bonds and units in managed funds;

• rents received on residential property; and

• payments of money to settle a claim under an insurance policy.

7. Bank Account is opened in the name of the Fund

The trustee of a SMSF must open a bank account to enable the fund to accept contributions, rollovers and earnings, and to pay expenses and tax. It is not uncommon for SMSFs to overlook this step in the interests of convenience.

However, it is important that a SMSF have its own bank account to ensure that s 52(2)(d) is not breached. Section 52(2)(d) provides that the trustee must keep money and assets of the fund separate from other assets of the trustee and assets of a standard employer-sponsor. This must be adhered to.

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Send mail to bec@gatherumgoss.com or pat@gatherumgoss.com with questions regarding technical aspects of accounting.
Last modified: 29 January 2008