Self-managed super funds or SMSFs are superannuation funds where members take control over their investment retirement in accordance with Taxation Office regulations. For many, it is one of the best investments available.
What comprises SMSF?
The SMSF may consist of one to four members who are also called the trustees. All members have control over the funds. They are also responsible for everything that happens to it. Employees cannot be a member of the same SMSF as their employers unless they are related.
In addition, each trustee should not receive any compensation for services rendered as a trustee. The same rule applies to funds that use a corporate trustee where each member is the company director.
On the other hand, single member SMSFs may only have one member or may alternatively have two individuals as trustees. However, the member must be one trustee while the other trustee can be anyone who is not his or her employee.
Some individuals may not be qualified to join SMSF funds or become a trustee or director due to the following reasons.
• Convicted of offenses involving dishonesty
• An undischarged bankruptcy
• Have been subject to any civil penalty order stipulated in the SIS Act
• Disqualified by the regulator
Furthermore, a company may not qualify as a trustee due to the following reasons.
• The company’s responsible officer is disqualified
• A provisional liquidator or official manager has been chosen for the company
• Actions have begun to close the company
Setting up the SMSF
Choose the SMSF structure
There are two choices for the SMSF structure. People can choose either to set up the fund with individual trustees or with corporate trustees. Either way, there are special rules to follow when it comes to member or trustee selection and responsibilities.
Choose qualified members
Generally, any individual who is 18 years old or older can become a fund member or trustee provided they do not have any legal disability such as mental impairment or bankruptcy.
Validate the fund’s residency
It is important to validate the fund’s residency in order to receive tax concessions. Otherwise, the fund’s assets and income will be taxed at the highest marginal tax rate.
Create the trust and the trust deed
In order to create the trust and the trust deed, there must be trustees, assets, identifiable beneficiaries and the purpose of creating the trust.
The trust deed stipulates all the rules for the fund’s establishment and operations. It is a legal document that contains the fund’s intentions, benefits and how they are paid and the members.
Officially set the trustees
The funds must officially set its trustees. They are required to sign a declaration within 21 days following their appointment. Doing so proves that they fully understand their responsibilities and duties of trustees and directors.
Obtain every member’s TFN
It is important to obtain and record all fund members’ tax file number. This information is important for the fund’s registration with the ATO. Otherwise, the member may not be eligible to receive the super co-contributions. In addition, the SMSF may not be able to accept contributions paid on the member’s behalf. The fund may also end up paying extra taxes for contributions to that particular member’s account.
Open a bank account
The bank account should bear the fund’s name. This is where the fund’s cash contributions must be placed. Doing so also allows the fund to effectively manage the operations.
Register the fund
After completing all the requirements, the fund is ready for ATO registration. With this, the fund will be able to elect regulations and obtain a TFN, Australian Business number and GST registration.
Come up with a sound investment strategy
The investment strategy is paramount to the fund’s success. Trustees must come up with a framework that will guide them in making investment decisions. With this, they can ensure that the members will be able to boost their retirement benefits. However, it is essential to have this investment strategy placed in writing.
Seek help from SMSF professionals
In order to start the SMSF accurately and legally, it is best to seek help from professionals who are experts in the area. SMSF Perth can help setup your smsf and can provide comprehensive advice for preparing the fund’ accounts, taxes and SMSF annual returns. An attorney can take care of the trust deed while the fund administrator helps manage the funds and do administrative tasks and annual reporting. It is equally important to have a financial adviser to help come up with sound investment strategies.