If you’ve decided that an SMSF is right for you and now are wondering where you should start, you can use this guide to understand the set-up process for your SMSF. You can also consider engaging with our SMSF accountants in Melbourne to assist you.
Important Things to Know about SMSFs
Before getting onto our guide for an SMSF Setup in Melbourne, let us share with you a few considerations you should think about and the risks and responsibilities that come with an SMSF.
How is an SMSF different from a traditional super fund?
There are numerous differences between a self-managed super fund and other conventional super funds. However, all super funds have the same purpose and that is to provide members with financial resources and other benefits upon retirement.
The main factor that differentiates an SMSF from a traditional fund is that trustees have greater control and flexibility in terms of tailoring their super fund. With that said, it also means that there’s a lot of responsibility that falls on your shoulders. Listed below are some considerations you should think about if you’re planning an SMSF Setup in Melbourne.
Considerations When Setting Up an SMSF
- Time – While many trustees engage with SMSF administration services to help them, do expect that you still have to commit your time to complete a number of activities for compliance.
- Decision-making – As an SMSF trustee, you are expected to have some understanding of tax laws, SMSF regulations, and various investment markets. Also, it is your responsibility to formulate and frequently review an investment strategy for the fund.
- Compliance – Managing your own super fund and being its trustee means you are obliged to strictly follow super laws. Failing to comply can result in you being personally fined by the ATO.
- Compensation – As per the regulations on super, an SMSF is not eligible for compensation if it suffers a loss due to fraud or theft. On the other hand, members of other super funds may be entitled to financial assistance from the government.
Is it worth it to set up an SMSF?
Being in charge of your own super fund entails a lot of responsibility and demands your time, and it could also cost more to manage vs the fees you pay for a conventional super fund. However, managing your own SMSF could also offer significant benefits in your retirement.
Some key advantages of an SMSF include:
- Investment options – SMSFs have the liberty to choose from a wide range of investment options, from direct shares to international markets and collectable assets. In addition, since it’s possible for SMSFs to pool your super with five more individuals, you have the opportunity to invest in bigger assets such as properties.
- Tax rates – Although SMSFs have the same tax rate as conventional super funds, careful consideration of tax strategies can allow you to grow your fund and reduce tax payments as you move to retirement.
- Track savings – As the member and trustee of your own SMSF, you have more visibility on how your money is invested and how those investments are performing. This will allow you to better align your retirement goals with your investment decisions.
- Cost – Most costs of running an SMSF are fixed and therefore, your fund will be more cost-effective as it grows.
It is important to mention that the overall cost of having an SMSF depends on the investment it holds and the level of support that you engage to manage the fund.
Steps for an SMSF Setup in Melbourne
Note: This general guide applies to anyone who wishes to set up an SMSF.
Are you 100% decided that an SMSF is the right choice for you? Great! You’re ready to establish your super fund. Read our guide below for an easy-to-understand guide for an SMSF setup.
Step 1: Choose a structure for your SMSF
There are two types of SMSF structures available, these are the individual trustee and the corporate trustee structures.
The individual structure requires at least two individual trustees, which means each member of the fund will act as a trustee. In the corporate structure, a company must be set up to serve as a trustee with the members acting as the directors.
At SMSF Australia, we recommend the corporate trustee structure as this provides many long-term benefits for SMSF members.
Step 2: Establish an SMSF Deed
After you’ve decided which structure is suited for your circumstances and have appointed the fund’s trustees/directors, the next step is creating an SMSF deed. This deed is required for the SMSF to be legally established. This deed sets out the governing rules of the fund and includes the names of the fund’s trustees, members, its objectives, and whether the powers and duties of the trustees. This document is available from most experienced SMSF lawyers and needs to be kept updated for any changes in the laws governing the industry such as the Superannuation Industry (Supervision) Act 1993.
Consider engaging with a professional when creating the SMSF deed as part of your SMSF Setup in Melbourne as it is an important legal document that contains the rules and conditions of how the fund will operate. This is not an area where we recommend a DIY approach or buying something cheap online.
Step 3: Sign a declaration form
When completing a new SMSF Setup in Melbourne, or anywhere in Australia, you are required to sign a form declaring that you fully understand your obligations and responsibilities as the fund’s trustee or director. You can download this form approved by the ATO and have it completed and signed within 21 days of your appointment.
This needs to be kept in the permanent file with the other core SMSF documents and will be reviewed and signed off on by your auditor when they complete your inaugural annual audit.
Step 4: Register with the ATO
The next step is to register the fund with the ATO within 60 days of the SMSF being legally established. The trustees will need to apply for a tax file number (TFN) and an Australian business number (ABN) for the fund. An SMSF accountant can accomplish this on your behalf.
From a timing point of view the ATO allows themselves 28 days to issue the ABN which you require before being able to open the bank account and request any rollovers. From our experience more than 90% of the time the ABN is issued instantly but the potential for delay is something to keep in mind when deciding when to open your fund, especially with property investors as you don’t want to risk any delays to settlement.
SMSF directors who are not directors of other entities are required to file for a Director’s Identification Number (DIN) with the Australia Business Registry Services.
Step 5: Open a bank account
The last step for an SMSF setup in Melbourne is to open a standard bank account that will be used to receive contributions from members and also pay-out the members’ benefits. The bank account will also be used for transactions connected to operating the super fund.
There are no restrictions on the bank you may choose to use with all the major banks offering accounts for Self Managed Super Funds. The full name of the bank account will be ‘The Trustee for the XYZ Super Fund” and the bank will need a copy of the information for the fund and its corporate trustee in order to complete the setup.
We are not affiliated with any of the banks but to date we have had the most positive feedback from clients using Macquarie Bank for their SMSF banking.
How can you transfer existing super funds into your SMSF?
When your SMSF is finalised you can initiate the transfer of your current retail super funds into your self-managed super fund. You can do this by completing a rollover request form, which you can see on the website of your retail fund. Alternatively, you can download this form from the Tax Office.
In order to complete the rollover your fund will need to be showing as compliant on the Super Lookup pages and ideally the rollover can be completed by an accountant using the new Super Stream system.
For more information about rollovers from existing funds, visit this page from the ATO.
Ready for an SMSF Setup in Melbourne?
There are many benefits to setting up an SMSF; however, it is vital that you fully understand your duties so that your fund is compliant, and you can take advantage of the tax concessions under the superannuation law.
If you are unsure of anything about your self-managed super fund or need assistance from experienced professionals to complete your SMSF Setup in Melbourne, our team at SMSF Australia is happy to assist.