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Self Managed Super Fund (SMSF) Article
How to set up a Self Managed Super Fund

By Tony Negline.

This article may be out of date.

14th March 2009

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A fundamental legislative requirement for superannuation funds is that the assets of the fund must be held ‘in trust for’ the members of the fund. Therefore, one of the most important tasks when establishing a Self Managed Super Fund is the appointment of trustees and the drafting of the fund’s trust deed.

The Superannuation Industry (Supervision) Act provides the legislative requirements to follow when deciding on the trustee structure of a Self Managed Super Fund.  Trust law and the SIS Act provide the fundamental legislative requirements relating to the proper conduct of trustees and the content of the fund’s trust deed.

In a very broad sense, the establishment of a Self Managed Super Fund requires the drafting of a trust deed, appointing the trustees, obtaining membership applications, formulating an investment strategy for the fund, deciding on the appointment of external service providers, obtaining a TFN  and GST registration, lodging the fund’s election to become a regulated fund and opening the fund’s bank account.

There are eight key steps in setting up a Self Managed Super Fund, as set out below:

  1. Obtain a trust deed
  2. Appoint the trustees
  3. Elect to be regulated under the SIS Act
  4. Lodge an election with the regulator (include request for ABN, TFN and if necessary registration for GST)
  5. Obtain applications for fund membership
  6. Provide notices to each member
  7. Establish an appropriate investment strategy
  8. Decide on an appropriate accounting method (for example, segregated or unsegregated assets)
  9. Appoint external service providers, such as auditor
  10. Open the fund’s bank account or cash management trust.

The ATO website contains some excellent information on the steps that must be taken in order the set up a Self Managed Super Fund.

Obtain a trust deed

A trust deed must be prepared as evidence of the existence of the fund. The trust deed also establishes the rules of operation of the fund. It is a vital document.

Appoint the trustees

The trustee structure of the fund must comply with the requirements of the SIS Act. These requirements, along with the requirement that the trustees of the fund must not receive any remuneration for any duties or services performed in relation to their role as a trustee of the fund.

A person must give their consent in writing to act as a trustee.

A superannuation fund must also obtain a declaration from a trustee stating that he/she is not a disqualified person.

The trustee appointment process is set out in the trust deed. A Self Managed Super Fund must have a trustee before the trust deed can be executed.

Elect to be regulated under the SIS Act

In order to receive tax concessions a super fund trustee has to irrevocably elect to follow the requirements of the SIS Act.  In practise this is done when the fund lodges the ATO application.

Lodge an election with the ATO

The Trustees must complete the ATO form Application to Register for the New Tax System Superannuation Entity (the form can be completed on-line at  Funds can declare that they are a Self Managed Super Fund and hence elect to be regulated by the ATO.

They can also apply for an ABN, Tax File Number (TFN) and register for GST (registering for GST is not compulsory and a fund should think carefully about applying for this).

The ATO form can be submitted on-line however it would be prudent practise to make sure that a fund has a paper copy of this form signed by the trustees in its records.

Obtain applications for fund membership

All intending members of the fund should provide their membership detail and TFNs in writing.  As detailed above, at this point some people argue that a fund should issue a Product Disclosure Statement.

Establish an appropriate investment strategy

The trustees of a small super fund must formulate and give effect to an investment strategy for the fund (or sub-fund) which has regard to specified factors.

Decide on appropriate accounting method

There are many issues for a trustee to decide on this particular point. Deciding whether to segregate fund assets is a particularly important issue when a fund has members who haven’t retired and pensioner members.

A trustee also has to decide if they will assign specific assets to a specific member(s).

Appoint external service providers

The trustees must decide on the appointment of compulsory external service providers such as an approved auditor, tax agent and possibly even an actuary. Although these services could be provided by a member of the fund acting in their professional capacity, such an arrangement would need to be on an arm’s length commercial basis.

The trustees may also decide to appoint the services of a professional fund administrator, investment adviser or investment manager(s) etc. The appointment of external service providers must be made in writing by the trustees.

Whilst the trustees can engage other people to do certain acts or things on their behalf, the trustees are ultimately responsible and accountable for ensuring the fund is run in a prudent manner.

Open the fund’s bank account or cash management trust

Trustees are required to open a bank account in the name of the fund. Alternatively a CMT will also suffice for this purpose. It is essential that the assets of the fund are kept separate from the personal assets of any of the trustees at all times. In situations where the trustees have appointed a professional administration manager for the fund, the opening of the fund’s bank account is commonly completed or co-ordinated by the administration manager.

Once the above steps have been completed, the small super fund can commence its normal operations of accepting contributions, investing the assets of the fund and setting up the administration arrangement.

Who can help you set up your self managed super fund?

Anyone can help set up a small super fund.  There is a legislative issue as to who can recommend that investors set one up. Often, however, most of the basic administration work is performed by junior staff at an accounting or financial planning practise.

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This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.

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