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Self Managed Super Fund (SMSF) Article
Steps to a functional fund

By Tony Negline.

This article may be out of date.

27th October 2010

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This column is often asked what steps are involved in setting up a Self Managed Super Fund.

A fundamental legislative and trust law 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 SMSF is the appointment of trustees and the drafting of the fund’s trust deed.

The super laws provide the legislative requirements to follow when deciding on the trustee structure of a Self Managed Super Fund.  Trust law, the super laws and a fund’s trust deed provide the fundamental requirements relating to the proper conduct of trustees.

There are ten key steps in setting up a SMSF:

Choose A Fund Name

The easiest part of creating a SMSF is to name the fund itself.  The Cooper Review suggested to the Government that SMSFs shouldn't be allowed have a name similar to an existing large 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

Appoint The Trustees And Ensure They Sign The ATO Trustee Declaration

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 under the super laws.  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 election is confirmed 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 to be registered).

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.

The ATO has amended to process it uses to put new SMSFs onto their databases so that it is harder for super monies to be stolen or for people to access their super prior to retirement.  They have also introduced a new SMSF member verification system so large super funds can know that they can transfer or rollover funds to legitimately established small super funds.

Obtain Applications For Fund Membership

All intending members of the fund should provide their membership detail and personal TFNs in writing.  At this point a super 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 legislative factors.

Decide On An 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 members who are receiving pensions.

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 done for free.

The trustees may also decide to appoint the services of a professional fund administrator, accountant, investment adviser or investment manager(s).

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 and administered correctly.

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 or business 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 operations of accepting contributions, investing the assets of the fund and setting up the administration arrangements.

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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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