SMSF Setup Made Easy: A Step-By-Step Guide

SMSF Setup Made Easy: A Step-By-Step Guide

Becoming a trustee of your super fund and embarking on the SMSF setup is empowering. It allows you to take control of your retirement savings but also comes with a significant level of responsibility.

In this blog post, we will discuss setting up an SMSF. We’ll cover compliance regulations and costs.

Preliminary Considerations of Setting Up a Self-Managed Super Fund

Before you begin setting up an SMSF, you need to know that managing it involves important responsibilities and rules. 

As SMSF trustees, you assume a role that demands a degree of accountability comparable to that of a company director. 

Your responsibilities include making good investment choices and following the law and regulations. 

In other words, your decisions must be for the primary purpose of providing retirement benefits to the fund’s members, managing the fund’s assets and protecting members’ interests. Also, handling administrative duties like record-keeping, tax compliance and audits. 

To do this job well, you need to know a lot about finance and superannuation laws. If you don’t, you could get in trouble and hurt the fund’s members.

The Process of Setting up an SMSF

Once you’ve considered the above factors and decided to proceed with the SMSF setup, there are several steps you need to follow.

Note: It’s recommended to seek personal financial advice from an authorised adviser and get a Statement of Advice (SoA) before starting the process.

Establish a Trust

The first step in the process is to establish a trust. An SMSF is a type of trust set up for the sole purpose of providing retirement benefits to its members. A trust requires:

  • Trustees
  • Trust deed
  • Assets
  • Identifiable beneficiaries
  • Intention to create a trust

Create the Trust Deed

The trust deed plays a central role in the operation of your SMSF. The document lists rules for the trustee to follow. It cannot have clauses that break the law. 

To ensure the deed is well-organized and allows trustees full control and flexibility, a qualified lawyer or recognised provider should create the deed.

A trust deed typically covers:

  • The identity of the trustees and the SMSF members
  • Trustees’ rights to amend the trust deed
  • Member investment choice availability
  • When and how benefits can be paid
  • Types of income streams the SMSF can pay
  • Acceptance of binding death benefit nominations
  • Who benefits can be paid to upon the death of a member
  • Rules to establish and administer fund reserve accounts
  • When and how the SMSF should be wound up

Sign a Trustee Declaration

Within 21 days of becoming a trustee, you must sign a declaration acknowledging your duties and obligations. This is a formal process and must be completed using the ATO-approved form. Your completed declaration should be kept for at least ten years and made available to the ATO if requested.

Lodge an Election with the ATO

After establishing your SMSF, you must lodge an election with the ATO within 60 days to be regulated. Failing to submit the election notice means your SMSF won’t be tax-compliant.  If it’s a non-compliant fund, it will be subject to its income’s highest marginal tax rate instead of the typical 15%. 

Open a Bank Account

Once you’ve lodged an election with the ATO, the next step is to set up a bank account for your SMSF. This account will receive money from investments and pay expenses like fees and taxes.

Formulate an Investment Strategy

To run your SMSF, you must formulate and implement an investment strategy. The fund’s strategy should outline its investments, liquidity plan, risks, and member benefits. It should also consider whether to hold an insurance policy for each member of the SMSF.

Obtain Insurance Cover

Depending on the fund’s investment strategy, you may take out insurance policies for each member. This provides protection for the fund’s savings and investments in case of unfortunate events.

Post-setup Considerations

Establishing and setting up your SMSF is just the beginning of your journey. After the fund starts, you must regularly review and update your investment strategy to meet members’ needs.

Ongoing Compliance

As an SMSF trustee, you’ll need to meet ongoing compliance requirements. These include the following: 

  • Preparing annual financial reports and member benefit statements
  • Lodging income tax returns
  • Appointing an independent auditor to undertake an annual audit

Regular Reviews

Your investment strategy isn’t a static document. It should be regularly reviewed to ensure it continues to reflect the members’ needs and circumstances. As the trustee, you must ensure the fund follows all the rules and guidelines.

The Importance of Engaging Professionals

While it’s entirely possible to manage your SMSF setup and ongoing management independently, engaging professionals can provide valuable assistance. Property Tax Specialists are experts with lots of experience managing complex investment portfolios. We know how to structure them to minimise tax and maximise returns.

Key Takeaways

  • Setting up an SMSF is a significant decision with considerable responsibilities
  • You need to undergo several steps to complete the SMSF set-up process
  • Once your setup is complete, you’ll have to ensure ongoing compliance and regular reviews of your investment strategy
  • Every decision you make should be guided by the sole purpose test – providing retirement benefits to the members of the fund
  • By planning carefully and getting the right professional advice, you can effectively flexibly manage your superannuation.

Contact one of our experts today if you have multiple investment properties or have invested using your SMSF.  


Can I Set Up SMSF myself?

Yes, you can set up an SMSF, but it involves complex steps and adherence to specific legal and regulatory requirements. To set up an SMSF, you must make a trust deed, choose trustees, register with the ATO, open a bank account, and create an investment plan. 

Because the process is complex and involves legal responsibilities, many individuals prefer to seek assistance from professionals or SMSF firms to ensure compliance.

What is the Minimum Deposit for SMSF?

There is no legal minimum deposit or balance required to establish an SMSF. The Australian Securities and Investments Commission (ASIC) recommends having at least $500,000 to make an SMSF cost-effective. 

What are the Typical Trustee Structures Available for an SMSF?

An SMSF usually has two trustee structures: individual or corporate trustees. Individual trustees are when the members themselves act as trustees. A corporate trustee is when a company acts as the trustee, and the members are directors.

Do the Members of an SMSF Have a role in Managing the fund?

Yes, in an SMSF, the members are also the trustees, meaning they have a direct role in managing and making decisions for the fund, which includes investment and administrative responsibilities.

Are there Any Restrictions Regarding Property Purchases Through an SMSF?

SMSFs must follow specific restrictions and regulations while buying residential and commercial property. 

For instance, the property must pass the ‘sole purpose test’. This means it is bought solely for members’ retirement benefits. Additionally, SMSFs are generally prohibited from purchasing residential property from a fund member or a related party. However, commercial properties can be purchased from members or related parties under certain conditions. 

Also, if the SMSF takes a loan to buy a property with a Limited Recourse Borrowing Arrangement (LRBA), the property must be kept in a separate trust until the loan is paid back. The SMSF also can’t improve a property using borrowed funds, though maintaining and repairing it is allowed. 

Navigate these regulations cautiously to comply and protect your SMSF’s financial stability.

Must I Audit My SMSF Annually?

Yes, it is mandatory to have the SMSF audited annually. An approved SMSF auditor must audit all SMSFs in Australia. This ensures compliance with superannuation rules and regulations. The auditor examines the financial statements of the SMSF and assesses the fund’s compliance with the relevant laws.

Failure to conduct the annual audit, or any non-compliance found during the audit can result in penalties and sanctions from the ATO.  

How Much Does It Cost to Set Up an SMSF?

The cost of setting up an SMSF can vary widely depending on the complexity of the fund and whether you seek professional assistance. The costs include setting up the corporate trustee (if chosen), creating the trust deed, and registering with the ATO. If you engage professionals to assist with the setup, you will also need to account for their fees. 

The setup cost can range from a few hundred to several thousand dollars.

How Much Does It Cost to Set Up and Run an SMSF?

In addition to the setup costs, running an SMSF involves various ongoing expenses, such as annual auditing fees, the ATO supervisory levy, investment fees, legal and compliance expenses, and potential fees when you seek professional property tax advice.

The annual operating cost can vary significantly based on the fund’s size, investment strategy, and whether professional services are utilised for administration and compliance. It’s not uncommon for annual running costs to be $2000 to $5000 or more, depending on the factors above.

What is a Corporate Trustee?

A Corporate Trustee is a legal entity, usually a company, appointed to act as the trustee of a trust, including SMSFs, family trusts, and other types of trusts.

In the context of an SMSF, a Corporate Trustee means that a company is appointed to manage the fund’s assets, make decisions, and ensure compliance with relevant laws and regulations on behalf of the members. 

The company acts fiducially, ensuring that the trust’s operations are in the best interests of the beneficiaries or members, and it is legally responsible for the administration and management of the trust’s assets and liabilities.

Does the Australian Taxation Office Regulate SMSFs?

Yes, the Australian Taxation Office (ATO) plays a significant role in regulating and overseeing SMSFs. The ATO ensures that self-managed super funds comply with superannuation law. 

It manages the registration process of SMSFs, supervises their compliance with legal obligations, provides guidance and support to trustees, and takes corrective actions when non-compliance is identified, including imposing penalties or disqualifying trustees. 

The ATO also handles the reporting and auditing requirements of SMSFs, ensuring that they meet the necessary standards and regulations.

DISCLAIMER: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation, or needs. 

Amir Ishak is a Limited Authorised Representative 1269908 of Merit Wealth Pty Ltd, Australian Financial Services Licence 409361, ABN 89 125 557 002

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