Most self-managed super funds have traditionally been set up by couples, however an SMSF can also be set up with one member or with up to 6 related or unrelated people. Typically the members and trustees of an SMSF will be the same people. Check to ensure members are eligible to join an SMSF:
Anyone 18 years old or over can be a trustee of an SMSF (or director of the trustee company) as long as they’re not under a legal disability (such as mental incapacity) or a disqualified person. Minors under 18 years old can join an SMSF however their parent or guardian must act as a trustee on their behalf until they turn 18.
To knowingly act as a trustee, a trustee director or an office holder of a corporate trustee (such as secretary), while being a disqualified person, is an offence. To be sure you are not a disqualified person you need to be able to answer no to all of the following questions:
Provided all potential members answer No to the above 4 questions they are eligible to be a trustee and member of an SMSF.
When you set up an SMSF the first key decision you need to make is whether to have individual trustees or use an company as a special purpose SMSF trustee. There are advantages and disadvantages to each.
|SMSF Setup: Trustee Options||Individual Trustees||Company Trustee|
|Enables SMSF with one member only|
|Liability protection for trustees|
|Fast SMSF setup process|
|Good structure where only members are a couple|
|Suitable for simple investments (cash, shares, ETFs, managed funds)|
|Suitable for property investment|
|Suitable for SMSF borrowing|
|Suitable for SMSF setup with 3,4 or more members|
|Easy to add/remove members|
|Investments stay in same name when members change?|
|Ensures clean separation of assets between SMSF and members|
|ATO administrative penalties if incurred - who pays?||Each Trustee||Single Penalty|
|SMSF setup cost (via Grow SMSF)||$770||$1375|
|Ongoing costs of trustee (ASIC annual review fee)||$0||$63|
Fees quoted and ASIC annual review fees subject to change. For a more detailed comparison on choosing the right trustee for your and your SMSF, review the following article: Corporate trustee vs individual trustees SMSF What does the ATO say in regards to selecting a trustee as part of your SMSF setup? They cover it in detail on their website – Choose individual trustees or a corporate trustee
When you setup an SMSF you are creating a trust. A trust has assets are held by the trustee (or trustees) on behalf of the members (who are beneficiaries). An SMSF is a special type of trust where benefits must be held only to provide retirement benefits to members. Most providers have an online application form you use to complete your SMSF setup, including Grow.
You need to select a trust deed that enables you to maximise the potential a SMSF can offer when it comes to building your wealth while protecting you and your family at the same time. Your SMSF deed is probably the most important document in your arsenal when you are trying to build wealth, save tax and protect your assets. Many SMSF trustees and their advisers are guilty about approaching what you can and can’t do with your SMSF the wrong way. It is simply not a case of checking whether it is OK under the relevant superannuation and taxation laws. You need to ensure that your trust deed allows it – if it is not contained in the rules of the fund then you can’t do it. Even more importantly, if you do something that is contrary to a rule contained in your SMSF trust deed, then you have also breached the the superannuation laws. Also read: What is the best self managed super fund SMSF trust deed?
SMSF trust deeds are typically signed by the members / trustees (or company directors where a corporate trustee is used) in physical format however it may also be possible to legally sign via electronic means as part of your SMSF setup. Update October 2020: The Government is proposing new laws that would confirm that electronic signing of SMSF trust deeds is legally valid. Where you have set up an SMSF using individual trustees, in most cases your are unable to sign electronically as the trust deed requires a witness and most States and Territories in Australian exclude documents that need a witness from being signed electronically. Where a company trustee is used, although the Corporations Act has traditionally not allowed trust deeds to be signed electronically, however there is a temporarily allowance in place due to COVID-19 from 6 May 2020 through to 22 March 2021. Regardless of the above, electronic signatures at a common law level are readily accepted by the Courts in a variety of scenarios and it’s likely the legislation enabling SMSF deeds to be signed electronically will shortly catch up with common business practice. As a fallback option if you sign a trust deed electronically as part of your SMSF setup, also take the time to physically print and sign with a wet ink signature the SMSF trust deed document so you’re always covered for circumstances where a third-party demands a deed with an original wet ink signature.
In addition to signing the trust deed as a key part of your SMSF setup, there are a number of other documents you also need to sign:
One quirk with an SMSF setup is that for the self managed super fund to legally come into existence, it needs to have assets. This is because an SMSF is a trust, and a trust is created by assets being held by the trustee on behalf of the beneficiaries (i.e. SMSF members). In an SMSF context this means that to correct set up an SMSF the right way, you need to:
Although an SMSF legally comes into existence when it has assets and the trust deed has been signed by the trustee(s) and member(s) it doesn’t exist as far as the ATO is concerned until it’s been issued with an Australian Business Number (ABN) and it’s been registered on Super Fund Lookup. A combined SMSF registration and ABN / TFN application needs to be completed online by either the trustees of the SMSF or by an accountant. Grow takes care of this process for our clients as part of our SMSF setup service. It’s extremely important that correct information is provided to the ATO during this process as incorrect or inaccurate information submitted can lead to lengthy delays when it comes to setting up your self-managed super fund.
The following are the key items that must be provided as part of the SMSF setup process when you register the new fund for an ABN and TFN:
The online ABN and SMSF registration application form is complex therefore it’s always recommended that you don’t attempt to complete it without the assistance of a specialist SMSF accountant.
To ensure the ABN registration process is as smooth as possible, there are a number of per-requisites that should be addressed prior to completing the application (or rather having your SMSF specialist complete the application):
To ensure your SMSF ABN and TFN are issued instantly and that your SMSF is quickly registered, all details provided during the application must be accurate. If there are any items that may cause a red flag with the ATO your SMSF application may be delayed by a few days or up to a month as the ATO be required to manually review your application. More information: SMSF registration: ATO might phone you!
Although there is no mandated minimum amount needed in super for an SMSF to be setup, the ATO does consider people who set up a self managed super fund with low superannuation balances a high risk, and therefore they may elect NOT to register your SMSF. When an application to register your SMSF is submitted to the ATO, they undertake a risk assessment to determine whether the fund should be registered and shown on Super Fund Lookup as ‘Complying’ and therefore eligible to receive rollovers / transfers from other superannuation funds as well as contributions. One of the key items the ATO looks at as part of their risk assessment is the existing superannuation balances of the members of the SMSF. The lower the balances, the more likely a manual review will be triggered which will delay the registration of your SMSF. It’s unknown what the exact amount is, and it’s likely combined with other risk factors the ATO looks at when deciding whether to register your new SMSF or not.
The next step in your SMSF setup once your fund has been issued with its ABN/TFN and has been activated on Super Fund Lookup is to set up a bank account. This doesn’t necessarily mean a trip to a bank branch. Many banks will be able to set up your new SMSF bank account through an online application.
When selecting a bank account as part of your SMSF setup, don’t immediately default to your existing bank that you use for personal banking. Although it may seem convenient to have your SMSF account(s) with the same bank, in reality its likely going to work better if there is clear separation between your SMSF and personal accounts. This is called ‘separation of assets’ and if you don’t comply with it and your personal and SMSF accounts and investments are intermingled, the auditor of your fund is required to report it to the ATO. When selecting the best bank account for your SMSF, look for an account with the following features:
In our opinion, the best bank account for any SMSF (new or existing) is the Macquarie Cash Management Account (CMA). To find out more, you can read the details in the following article: Best SMSF bank account
Once you’ve set up the bank account for your SMSF, you can then set up other investment and stockbroking accounts. The new bank account, such as the Macquarie Cash Account, act as the central cash ‘hub’ for your SMSF. Your SMSF bank account will receive the following deposits:
In addition the SMSF bank account will pay the following amounts:
The account may also have investment purchase and sale transactions being deposited or withdrawn. Selecting stockbroking and investment accounts It’s important to carefully think about the stockbroking and investment accounts you use for your SMSF as they can directly impact the time it takes to managed your SMSF and also the fees you pay. This is because certain accounts and providers more seamlessly integrated with SMSF administration platforms, which creates more automation, reduces paperwork and keeps the fees you pay under control. For more information on the broker and investment platforms available and how they impact ongoing administration costs, please visit our SMSF fees page.
Once your SMSF has it’s bank account open, if you want your employer contribution to be paid to your new SMSF you have to provide your ESA (electronic service address) together with relevant bank accounts and SMSF details to your employer / payroll office. These details are mandatory for your SMSF to receive contributions via the Superstream system. Superstream is basically an electronic remittance sent to your SMSF when an employer pays you super. The Electronic Service Address (ESA) for any SMSFs set up or looked after by Grow is: smsfdataflow Provide the following information in writing to your employer / payroll office for their records:
Please note than SMSF will not have an SPIN or USI as these identifiers are for larger APRA regulated industry and retail super fund not SMSFs. You can download an editable ESA Notification Template (.docx) here to complete and give to your employer. Alternatively, you can generate a Superannuation Standard Choice Form (.PDF) here: Super Choice Form
Once your SMSF has a bank account set up you can now request that your existing superannuation fund transfer some, or all of your superannuation monies to your SMSF. The process of transferring your super to your SMSF typically involves:
Once the monies have been received into the SMSF bank account the investment strategy of the fund can be implemented.
A key decision you need to make during your SMSF setup is whether to transfer all or only part of your existing superannuation to your SMSF. In addition, insurance cover is also a key item that must be considered by you as trustees as part of your SMSF investment strategy. Its extremely important to understand that if you transfer 100% of an existing retail or industry super fund account to your SMSF, those existing accounts will be closed and any attached insurance cover will be lost. This leaves two main options when dealing with insurances as part of your SMSF setup:
The above options are not mutually exclusive. You can select option 1, then once replacement insurance is setup in your SMSF you can complete another rollover / transfer request for any final amounts to be transferred to the SMSF. Whatever option you choose, its important you seek advice from an adviser appropriately licensed with expert knowledge in insurance. Please refer to the Grow SMSF Advice Disclaimer and also check our blog for more information on SMSF insurance.
The time for a industry or retail (APRA regulated) superannuation fund to transfer your existing superannuation to your SMSF will typically vary from two to four weeks. Once an APRA regulated superannuation fund receives a rollover request from a member, as well as all necessary supporting documentation, they have to process the transfer within 28 days. Rollovers from APRA funds are mostly paid via cheque, although some are beginning to move towards electronic payments, which is why it’s essential to provide the SMSF bank account details on the rollover forms wherever possible.
Although originally set to be up and running during 2020, the ability for SMSFs to receive rollovers via SuperStream (same electronic payment / remittance system as employer contributions) has been deferred until 31 March 2021. Prior to this time rollovers will still be manually processed and paid, and the longer time frames apply. Once the SuperStream system is up and running for rollovers to SMSFs the process will only take a few days.
There are certain key things that you must do as part of your SMSF setup and rollover process to ensure any transfer requests are not delayed unnecessarily:
In summary, most industry and retail superannuation funds treat the rollover to an SMSF the same as a cash withdrawal therefore have quite strick requirements to protect your super from identity theft as well as illegal withdrawals.
It’s very important to understand that when you set up an SMSF and transfer 100% of your member balance from your existing industry or retail super fund, you will lose any attached insurance cover. This means you can either leave a minimum amount (specified by the super fund) in your existing account to ensure the insurance is kept active or obtain SMSF insurance prior to transferring your existing super account(s) to your SMSF. It is essential that you get your insurance needs assessed and have your SMSF acquire appropriate insurance policies on behalf of the members. Although you can shop around by yourself for a policy you believe suits the needs of you and your family, you are better seeking advice from an experienced insurance adviser. It will likely cost you nothing and you are likely to get better cover at a better price compared to if you organised it yourself. If you would like a referral to a specialist insurance adviser, please get in touch and I can put you in contact with someone who can assist you. Alternatively, if there are specialist online SMSF insurance providers such as Life Insurance Direct which are a step above the online comparison websites.
The final key stage of your SMSF setup is to implement your SMSF investment strategy. Some SMSF setup checklists include the creation of an investment strategy, however we believe the investment strategy should be created in some format prior to setting up the SMSF structure itself. It’s a minor, but important distinction. At this stage of the set up process, your new SMSF has received rollovers of existing super and has money in the bank ready to be invested. Implementing the investment strategy is simply the process of buying the investments that will fit the strategy chosen by the members of the SMSF.
An investment strategy document is the written plan that describes how your SMSF will invest on behalf of the members. It’s essentially your roadmap on what investments you will purchase in the name of the super fund. Ideally the investment strategy should be developed as early as possible in the SMSF setup process. From a practical perspective the investment strategy document does not have to be provided to anyone until the first audit of the fund is undertaken (typically in conjunction with the first SMSF accounts and tax return being prepared). The ATO has some great resourced on SMSF investment strategies here: https://www.ato.gov.au/Super/Self-managed-super-funds/Investing/Your-investment-strategy/
A key item that needs to be considered with an SMSF investment strategy is diversification. This means you’ve determined how your SMSF will (or will not) invest in a range of different types of assets. A very useful process to go through to help build a customised investment strategy for your SMSF is the Stockspot personalised investment recommendation. This online advice tool takes you through a detailed questionnaire and at the end Stockspot will provide you with an investment advice document that outlines a recommended investment strategy. You can then use this document to help you document your investment strategy. Whether you go ahead and invest with Stockspot or not is up to you as trustee of your SMSF. Please note our Advice Disclaimer.
When implementing your SMSF investment strategy you will likely need to select specific investment accounts and providers to invest through. With Grow, we do not mandate any particular bank, broker or investment account provider, however we do provide lower SMSF administration fees when you use certain accounts and providers due to the efficiencies and time savings we gain, which we in turn pass onto you and your SMSF. As per our SMSF Fees page we have a ‘Base’ pricing package that includes access to the following popular bank accounts, brokers and investment plaforms:
|Popular Bank Accounts||Popular Broker Accounts||Popular Investment Platforms|
|Macquarie CMA||SelfWealth||BT Panorama|
|Westpac||Westpac Online Investing||Macquarie Wrap|
|ANZ||ANZ Share Investing||HUB24|
|BOQ||Macquarie Online Trading||IOOF|
|Bell Direct / Bell Potter|
In addition to the above, we also have special ongoing SMSF administration packages set up with the following providers:
In summary the particular bank, broker and investment accounts you select as part of your SMSF investment strategy will directly influence the ongoing fees your SMSF will pay. Similarly, the more complex your investment strategy, the higher the likely ongoing costs in terms of both time and fees. Select wisely.
Once you know your asset allocation and have made a decision on your insurances for members as part of your SMSF setup, you need to document your SMSF investment strategy. With Grow you can simply and easily generate your SMSF investment strategy online for no cost: SMSF Investment Strategy Form
Taking the first step can be hard. Let’s make it easy!
Arrange a phone call, Zoom or Google Hangouts chat to discuss how me and Grow can help you with your SMSF. When looking to set up a new SMSF, having a conversation with a real human is the best way to start.
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