What Are The Steps To Getting Your Self-Managed Super Fund Ready?
Self-managed super fund (SMSF) provides a great way for you to save for your retirement offered by the Australian financial system. The biggest difference between an SMSF and other retirement funds is that members of an SMSF are called trustees. Trustees run the SMSF the way they see fit. They are also responsible for complying with the laws and regulations that cover SMSF and they should meet a specific residency, be qualified and meet management requirements.
Choosing to open a self-managed super fund.
If you decide to open a self-managed super fund you have to:
Know and understand that you are in charge. As a trustee, you are responsible for making all investment decisions for the fund. You also need to make sure that you are compliant with all the super and tax laws of Australia. SMSFs are big financial decisions which need you to be prepared to meet all requirements needed for them. It is best to get help from a licensed financial professional to help you compare SMSFs with other options to see if you can handle the requirements. To choose a financial advisor, go to the Australian Securities and Investments Commission (ASIC) website for more information. Be warned that it is illegal to use your SMSF funds for anything except for funding your retirement.
Compare your Self-Managed Super Fund with other super funds. SMSFs are unique from other types of retirement funds. The major differences have something to do with members and trustees, investments, responsibility, regulation and insurance.
- SMSFs can only have a maximum of four members who are considered as trustees in the fund while other funds have no limit on the number of members.
- The trustees bear all the responsibilities for complying with regulations and laws. Other super funds have a professionally licensed trustee to bear compliance risks.
- Trustees are also allowed to choose the investments that they want to invest in while with other super funds, members do not have a choice on how the funds are invested.
- Insurance for SMSF trustees is optional and is usually expensive. Some super funds give discounted insurance to their members.
- SMSFs are regulated or overseen by the Australian Taxation Office or ATO. Other super funds are overseen and regulated by the Australian Prudential Regulation Authority (APRA)
Carefully consider time, costs and skills needed in setting up an SMSF. A great deal of time is needed in managing your SMSF. You should also be ready for ongoing costs in running the self-managed super fund. You should also be responsible for running the funds according to the law. Therefore, you have to familiarise yourself with tax laws for SMSFs, otherwise, you might end up paying for fees and penalties. You should also make investment decisions for the fund. Therefore, you have to learn about the restrictions on investments for a self-managed super fund. You also need to be aware that the fees for an SMSF can exceed those of other retirement funds. To be safe, you have to pay for financial and legal advice. You also have to pay for an independent audit to prepare and complete tax returns and valuations.
Setting up your own Self-Managed Super Fund.
Get professional help. Because of the complexity of an SMSF, some things cannot be done by yourself alone. There is a need to hire professionals to help you run the fund. You are, however, still responsible for compliance with tax and legal regulations.
- Each year you need to hire an approved SMSF auditor, who offers compliance audit services, to make audits to the fund.
- Professional advisors and accountants can help you establish and run the fund.
- The accountant can prepare annual operating and financial statements.
- You can also hire a tax agent to prepare and file the SMSF annual return, represent you in your dealings with ATO and give tax advice.
- You can also hire the services of a fund administrator to handle day-to-day accounting responsibilities
- You will also need the services of a lawyer to prepare and update your fund’s trust deed.
- Financial advisers can help you devise investment strategies.
Choose to have individual or corporate trustees. A self-managed super fund can either have four individual trustees or appoint a corporate trustee. With the second option, the company acts as the trustee for the fund. SMSF professionals can help you choose what is appropriate for your circumstances.
Create the trust. This means that a trustee (who may be a person or a company) holds property (or trust assets) in trust for the beneficiaries. Super funds are trusts. They are set up for the purpose of giving retirement benefits to its members or beneficiaries. To create the trust, you need trustees, identifiable beneficiaries, assets, and the intentions to create a trust.
Generate the trust deed. The trust deed is a legal document that details how you will create and manage your fund. It has information about the fund’s objective, the rules on choosing members, and how benefits are paid to beneficiaries. Super laws and the trust deed documents become the governing rules of a self-managed super fund. The deed must be signed by all trustees.
Choose your trustees. Trustees are appointed through the trust deed. They also must consent in writing for their appointment. They should also sign a trustee declaration which an indicator that they understand their responsibilities and duties. Trustees should keep these documents on file. They should also understand that penalties may be imposed if regulations and tax laws are not followed.
Verify if the SMSF is an Australian super fund. Australian SMSFs receive tax concessions. Therefore, it is important that self-managed super fund remains as an Australian super fund every financial year. It should complete residency requirements and rules to comply with the law. If the rules are not followed, the fund becomes non-compliant. And its income and assets will be taxed at higher rates.
Register the SMSF. Registering the fund requires you to set aside assets for members. This can also be done with a nominal amount of money. Once the trustees have signed the declaration, you are given 60 days to register with the ATO. To register, you should apply for an Australian Business Number or ABN to the Australian Business Register.
Open a bank account. The bank account should be set up in the SMSF’s name. It should be able to accept cash contributions and income from investments. Expenses and liabilities will be paid through this account. It should also be separate from any individual bank account of trustees. There is no need for separate accounts for each member but records for each member should be kept separate.
Secure an electronic service address. This address is a special internet address that lets your self-managed super fund receive contributions from employers electronically through SuperStream data. This is a standard tool for employer contributions to any super fund. To make contributions through SuperStream, employers should have the SMSF’s ABN, bank account details and electronic service address.
Be ready with an exit strategy. You should be prepared for the end of a self-managed super fund. This is the winding up of the fund. Wind-up requirements can be specified in your trust deed. You can explain how members’ of the fund will be paid out or rolled over when the fund winds up. You can also put here what happens when a member dies.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.
Call our Melbourne team today on 03 9088 2242, or email us via audit@kingstonknightaudit.com.au.
