How to set up a self-managed super fund

An SMSF can help you realize your retirement goals as well as those you care about.

It's sometimes said that life doesn't truly begin until retirement. With more time on your hands, you get to experience all the fun things you weren't able to do with a full-time job and young kids to support. It's little wonder why more than 70% of Australians have every intention of making this period a truly special time, according to the most recent survey data available from the Actuaries Institute of Australia.

There's only one problem: Retirement life doesn't come cheaply. It can be quite expensive, since the costs of living always go in one direction – up. Indeed, according to the Association of Superannuation Funds of Australia, the average unmarried individual will need roughly $545,000 to afford a comfortable retirement, while the typical couple will require more than $640,000.

Enter self-managed super funds (SMSFs). As its description suggests, an SMSF is a private super trust that you yourself are entirely responsible in terms of ongoing management, as opposed to financial services or wealth management firm. Several people can be included in SMSFs, in which the money that accrues through interest are paid out to members as retirement benefits. Alternatively, the income generated can also be utilised as a death benefit.

There are many working parts to establishing and managing an SMSF, which is why it's ideal to get in touch with a financial professional who can help you with setting one up.

If starting an SMSF is something you've long considered or are just now learning about, here are a few tips on how to get one going and in line with the rules and regulations established by the Australian Taxation Office.

1. Choose the trustees wisely
Perhaps the most important component of setting up an SMSF is trustee selection, or those granted authority to administer the trust in the manner that the owner so desires. You can choose up to four individuals, who essentially serve as board members. Alternatively, you can also opt for a company leader to act as a corporate trustee. This trustee doesn't necessarily have to be an entrepreneur or a high-ranking figure at a large company; small-business owners are eligible for this distinction as well.

It's very important to choose your trustees carefully. That's because whatever decisions they make you'll ultimately be responsible for, meaning there's a risk of liability. In short, you should be confident that you can trust them, as if they were to steal from you, that money will be lost. In other words, there is no insurance protection as a result of theft or fraud.

You also want to ensure that they're eligible to be a trustee and understand what their responsibilities are. Generally speaking, anyone who is over 18 years of age and hasn't been convicted of a "dishonest offence," such as fraud, theft, criminal behaviour or illegal transactions, can be considered for this role. The ATO has a checklist you can use to determine whether your trustee or directors are eligible.

2. Arrange a trust deed
The deed is essentially a legally binding document that establishes how you want your fund to function, in terms of what or who you want the proceeds of the trust to go to, how benefits are to be allocated and if those funds will be dispersed as a lump sum or income stream, meaning on an ongoing basis over time. It also requires a few additional aspects, such as the date and signature of all the trustees and prepared by someone that has a background in superannuation laws and execution.

The assets that are to be maintained by the trustees must also be set aside for eventual allocation, whether that is cash, property, real estate or other valuables capable of being distributed.

3. Ensure it's an Australian super fund
For an SMSF to be considered as an official Australian super fund, it needs to satisfy several key elements. For example, it has to be established in Australia or at least one of the assets is located within its borders. In this context, "established" means the first contribution was both paid and accepted while physically located in Australia.

Additionally, the central management operations and strategic decisions regarding the fund must occur in Australia and the members of it must reside in Australia for no less than half of the year.

4. Obtain Australian Business Number by registering
There are many tax advantages to an SMSF, but leveraging them entails registration so you can get an ABN. This must be done within 60 days of trust and trustee establishment. However, you will not be able to get the application for an ABN without having first completed the aforementioned steps.

Again, setting up an SMSF is complex, which is why you should seriously consider having a professional handle it for you. WMC Accounting is one such professional. Please contact a member of our team today for SMSF advisory services you can depend on.

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