Get your team together
A number of professionals will work with you to set up and run your SMSF.
The first step is to talk to your financial adviser about whether a SMSF is suitable for you. Your adviser will take into account your overall financial situation; how much accumulated superannuation you already have; your capacity to make additional contributions; the investment strategy that is appropriate to your risk profile; and your insurance needs within and outside the fund. As a SMSF can have up to four related members, your adviser will also help you decide whether it is appropriate to have other family members in the fund and explain what is involved to determine whether it is suitable for them.
Your adviser should be able to recommend a fund administrator who may be your tax accountant or a specialist administration firm with whom your adviser deals. You will need to appoint an independent auditor to review the fund on an annual basis. A list of approved SMSF auditors is available from the Australian Securities and Investments Commission (ASIC) website.
Other professionals may include a lawyer, a real estate professional if you are considering investing in real estate, a banker, a stock broker, and an actuary if you are moving into pension phase.
What sort of trustee – individual or corporate?
Under superannuation law, all members of a SMSF must be trustees of the fund – and all trustees must be members. The maximum number of members in a SMSF is 4 and no member may be an employee of another member, unless they are relatives.
You need to decide whether the members will be trustees as individuals, or whether you should set up a company to act as trustee. Most advisers will recommend a special purpose company for ease of administration – ASIC fees for such companies are considerably lower than ordinary companies.
Some business owners may want to use their existing business companies as the trustee company, but this is not recommended.
Single member funds need either a family member to act as an individual co-trustee or a single-director company to act as trustee.
Not all deeds are created equal
There are a number of firms offering trust deeds for SMSFs – many of them available online.
Ask your adviser for his or her recommendation – many trust deeds may not contain the comprehensive provisions that you may require for your investment strategy. For example, if you are contemplating borrowing within the superannuation fund to invest, the deed must specifically allow for this.
When considering your deed, think about how easy it will be to amend in the future – superannuation law is constantly changing and your deed should be broad enough that it does not need to be updated with every change. At some stage your deed will need to be updated with significant changes and you should be able to do this without having to amend every clause.
Be wary of the “free setup” services that are available online and read the fine print carefully before you sign. Many of these limit the bank account, investments, investment managers and administrators you can use – they may also load ongoing fees to compensate for the lack of up-front fees.
Once you have your deed, keep several signed copies in a safe place to provide to your bank, investment managers, administrator and auditor. Make sure your adviser has a copy and keep a scanned copy with your computer records. It makes sense to keep an unbound signed copy available so that you can print out additional copies should you need them. You should keep all your superannuation records in a readily accessible file.
Dealing with the Regulator
The main regulatory body for SMSFs is the Australian Taxation Office, although you may have to deal with ASIC, Department of Fair Trading, Australian Prudential Regulatory Authority and Office of State Revenue.
When you set up your SMSF you will need to sign a Trustee Declaration Form and you must keep a copy of this with your SMSF records. You will need to apply for a Tax File Number (TFN) and an Australian Business Number (ABN) for the fund. Your adviser and fund administrator can help with this.
Be aware that until there is money in the fund it is not considered to be active and if more than 12 months go by with no rollovers or contributions the Tax Office may cancel the ABN because it considers that the fund did not really start.
The first year of the life of your fund is most important and you will have to lodge a tax return for the fund by the 28th of February following the year in which it was set up.
As you can see, setting up a SMSF requires a lot of attention to detail. Always consult a suitably qualified financial adviser who specialises in this area and remember to ask questions before you act.
IMPORTANT: This flyer (current as of June 2014) is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser who will conduct an analysis based on your circumstances. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. Past performance is not a reliable indicator of future performance. Mortgage trusts are not bank deposits and are not government guaranteed.