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How to set up an SMSF account

Your self-managed super fund (SMSF) is an important part of setting up comfortable retirement savings. No one wants to work forever, and it’s in your best interest to prepare your trust so you get the maximum benefits. We’ll review how to set up your fund with an accountant in five easy steps. 

Why you may consider opening an SMSF

If you want to get more involved in your superannuation, an SMSF is a perfect way to do so. An SMSF can hold a third of the total superannuation funds and give you a more engaging experience for managing your retirement. 

Some of the benefits of choosing a self-managed fund include:

  • Investment options: You can choose which investments you want to make like residential or term deposits and you’ll have access to the derivatives to protect your portfolio risks. 
  • Buy commercial property: Small business owners have the chance to buy property with the SMSF and pay rent under a commercial lease agreement, thus funding the market value for the property. 
  • Pay for life insurance: If an emergency occurs, the funds within your SMSF can cover expenses and pay for the life insurance itself. 
  • Set up a trust: If you pass before you get to use your SMSF for retirement, you can set up the account so that the money saved is passed over to the right people. 
  • Tax minimisation: Along with a tax-free pension for your retirement, an SMSF gives you flexibility over contributions to your super by allocating funds as reserves. 
  • Save money for higher balances: For those who work within a higher tax bracket, an SMSF is a great alternative to other funds if your balance is greater than $300,000.

While it is possible to set up an SMSF yourself, it’s prudent to work with a tax professional and financial adviser along the way. Your financial security could be jeopardised if you set up the fund incorrectly where you do not get the full benefits of your savings or even get in trouble with the Australian Taxation Office (ATO). 

Setting up an SMSF account

To remain eligible for tax concessions, you need to prepare your SMSF properly. A well-prepared trust can easily accept contributions and is simple to manage. 

To set up a superannuation fund, there are a few steps involved. 

1. Choose your trustees

To establish a trust, you must appoint trustees who will help manage the account and cover you should something happen in the future. You can appoint individuals or corporate trustees from your business. 

You can appoint up to six trustees depending on the state or territory you live in. Each individual trustee of the fund is required to be a trustee. None of the members can be subordinates of any other members, such as an employee of another fund member, unless they are related. 

In a corporate trust, members cannot be an employee of another member unless related, and you can elect up to six members depending on where you live. Each member must also be a director of the corporate trust and each corporate  trustee needs a director identification number. 

2. Appoint trustees

The trustees you appoint are responsible for managing the assets. For example, each asset you attach to your trust should have a trustee appointed to it under the SMSF trust deed. They must be aware of their responsibilities and agree to be held accountable under the Trustee declaration. 

In a corporate trust, each trustee needs a director identification number that they register for to make their identity known to the ATO, and which they will keep until the SMSF is finalised.  Eligibility outside of being appointed and an equal partner within the trust can be found on the ATO website

3. Create the trust deed

The trust deed lays out the details of your SMSF, and each time an asset is added to the trust, it’s also added to the deed. It includes the objectives necessary to carry out the fund, how to distribute the benefits and who is a member. The SMSF deed must be signed by all members and regularly checked over for updates and any necessary amendments. 

4. Register your fund

The fund must be registered in Australia and the initial asset must be from Australia as well. Your trustees must be residents of the country to remain eligible. Once these and the steps leading up to registration are completed, you must apply for an Australian business number (ABN) within 60 days after signing the deed. 

You will ask for a tax file number (TFN) and elect your fund as an ATO-regulated SMSF to receive tax concessions. This is where a lot of errors can occur — typically due to incorrect information input or incomplete ABN applications.

5. Set up an SMSF bank account

You must set up a unique SMSF account so you can accept contributions, investments and rollovers, and protect the funds when the members retire. This is typically done as you register for an ABN from the bank and will be separate from any trustees’ personal bank accounts. Any funds that enter the account for each SMSF trustee should be documented for auditing purposes. 

6. Register for an electronic service address

An electronic service address is not unlike an email address but is unique to your SMSF. You need to set one up through the electronic SuperStream platform to receive contributions and rollover from any super or from your SMSF. The SuperStream is an ATO data and payment standard. 

Aligned with setting up your account, you must also consider an exit strategy. There could be a scenario where one or more of your trustees becomes no longer eligible or there is a relationship fallout. Within your deed, you can set rules and steps that must be followed should such scenarios occur. Each member should appoint a power of attorney to cover them in these cases as well. 

Taxes, interest and who can actually open an SMSF

Income made on your SMSF is taxed at a concessional rate of 15%. You must have a complying fund to qualify for this rate, meaning it was registered and each trustee is legally eligible to manage the fund. 

With the right SMSF investment strategy, you can earn interest in your SMSF. This makes an SMSF a great decision for your retirement. There is no minimum balance required to open an account, but, depending on your financial situation, it is more cost-effective to start with around $200,000. The reason for this balance recommendation is so you have the means to manage the account and the administration more easily.

Anyone can open a fund, but you must either be significantly financially literate or work with an accountant to receive the maximum benefits. Additionally, your trustees must also be prepared and responsible for managing their portion of the account. 

Get financial advice and streamline your retirement

While an SMSF does imply that you manage the account yourself, there are many steps involved even after you get the account prepared and registered. Speak with a Wilson Porter self managed super funds accountant to help you set up, strategise and manage your account for the best possible outcome. Contact us today to get started.