A Self-Managed Superannuation Fund (SMSF) is set up to provide benefits during retirement to its members. It is just like a normal Superannuation Fund but with a higher degree of control exercised by its members, who are also the trustees. The trustees can tailor the fund to cater to their respective needs.
The definition itself is enough proof that setting up an SMSF is extremely beneficial. It lets one make investments with the best returns, gain tax concessions, and get rollover benefits, amongst other things, in order to ensure better funds during retirement. The sole aim of an SMSF is to benefit every member.
In order to take advantage of an SMSF, you need to know the basics of setting up a fund. It involves a list of complex processes that yield maximum returns. These are described below.
1. Form a Trust
The very first step to creating an SMSF is forming a trust. This requires a selection of trustees, details of beneficiaries as well as details of assets held by the fund. The first and foremost thing however is the reason to create a trust.
2. Decide a Trustee Structure
The second step is to select amongst the two popular trustee structures — Individual and corporate. While both require four or fewer members as part of the fund, an individual trustee structure needs all members of the fund to be trustees. On the other hand, a corporate trustee structure requires all members to be directors of the company that is the main trustee. A corporate trustee structure is more flexible as members can be added or removed easily through the company and a sole trusteeship is also possible through it. Besides, getting a loan and waiving off liability is also easier through a corporate trustee structure. Meanwhile, setting up an individual trustee structure is less expensive and simpler. Nonetheless, it involves huge fees and documentation to add and delete members as well as waive off liabilities. It is also difficult to get loans for an SMSF with an individual trustee structure.
3. Design Your Trust Deed
In order to ensure the easy and conflict-free functioning of your SMSF, a trust deed is essential. Some of the details that this document contains are:
- Objectives of the fund
- Trustee powers and responsibilities
- Prerequisites in order to be a trustee of the fund and a member of the fund
- Investment options
- Deed amendment conditions for trustees
- Details on how the benefits can be paid
- Kinds of income streams that the fund can pay
- Complete particulars of people who benefit on the death of a member
- Stipulations regarding the acceptance of beneficiaries and contributions
- Conditions and procedure of winding up the fund
- Preconditions of hiring professionals
4. Sign a Trustee Declaration
A trustee declaration consists of the acknowledgment that the fund’s ultimate objective is benefiting the members and beneficiaries of the fund upon retirement. It also consists of responsibilities that members need to fulfill, legal and other obligations along with conditions of making contributions, purchase or managing investments as well as benefits within the SMSF. This declaration needs to be signed within 21 days of being anointed as a trustee or director of a corporate trustee.
5. Register with ATO
Within 60 days of formulating an SMSF, it is advisable to get the fund registered with the Australian Taxation Office (ATO). It is also wise to lodge an election to get regulated by the ATO in order to enjoy a 15% tax concession. Apart from this, if you have an annual turnover of more than $75,000, you need to register for GST as soon as possible after the establishment of the fund. You are also required to get the ABN (Australian Business Number) and TFN (Tax File Number).
6. Open a Separate Bank Account for the Fund
A separate cash account for the SMSF will increase the ease of accepting rollovers, investment returns, contributions, and more. It also makes it convenient to pay out expenses such as tax obligations, members benefits, accounting, and other supervisory fees and more.
7. Jot Down an Investment Strategy
An investment strategy is important for the success of an SMSF. This will help gauge more benefits during retirement. This strategy should concentrate on portfolio diversification, investments and their forecasted returns, liquefiable assets held by the fund, the members’ requirements as well as conditions, and the ability of the fund to pay out member’s benefits on retirement as well as other obligations from investments. Other than this, you should also confirm whether each member needs insurance.
8. Hire Professionals for Better Handling
Handling a superannuation fund on your own is tricky. It is thereby best to hire professionals to help you with the management. You can hire accountants, financial and investment planners as well as advisors, lawyers, and such in order to help with regular reporting, investment, and tax planning as well as audits.
Looking for professional help in setting up an SMSF? Zimsen Partners provides qualified and skilled SMSF accountants and business advisors who can assist in maximising efficiency as well as benefits. Call us today!