Setting Up Your SMSF


The suggested steps to set up a SMSF are as follows:

  1. Complete applications to set up the SMSF and Bare trust after agreeing to terms of payment. Notably, there are several providers for this service, each offering different service levels. Importantly, it is best to ensure that this is done with a group that do a number of these types of transactions. The provider should know the landscape and it is also best where they offer to chase your rollovers for you and assist in the actions around your loan application (a financial adviser must sign off on your loan to validate the viability of your purchase).

  2. Establish an ABN and TFN for the SMSF as part of the process of the SMSF set up – this can take up to 28 days.

  3. Complete applications using a Cash Management Account for the SMSF. It is suggested that this be held with the fund administrator’s preferred bank, as each banking institution offer a product for this and they do not vary much in features.

  4. Complete the fund’s Compliance Letter and Investment Strategy document which details approved investments – this will be provided when the SMSF is being set up. Without this document rollovers may be held up. Your SMSF provider should be able to assist with this.

  5. Complete applications for any personal insurance that needs replacing and/or reviewing (we for example, can provide you with details of an appropriate organisation to assist with this activity, ensuring that you review your insurance needs before rolling over monies, as rollover often triggers the cancellation of your insurance if it was purchased under your SMSF).

  1. Review any consequences of changing super funds, insurance that may be lost is assessed and consequences of change (such as fees, charges and loss of investment capability are all considered) - Only after the evidence of what is being lost by moving funds is understood and that one has confidence they can proceed should one roll over existing superannuation to a SMSF. This is done using an approved rollover document. Often Certified Identification, the SMSF compliance letter (already in place if you did Step 4) and documentation proving the SMSF’s existence are required. Seeking professional help with this can speed things considerably on each of these points.

  2. Once funds are placed in the SMSF account, refunding of set-up costs paid out of one’s own monies to set up the fund can be arranged. Maintaining receipts is essential here, and it is also notable that deposits on a property purchase should be paid after the SMSF is in existence.

  3. Once funds are placed in the SMSF account, refunding of set-up costs paid out of one’s own monies to set up the fund can be arranged. Maintaining receipts is essential here, and it is also notable that deposits on a property purchase should be paid after the SMSF is in existence.

Before setting up a fund and borrowing through an SMSF, the following should be considered:

  • Is the SMSF Deed appropriate? The SMSF trust deed must allow borrowing to occur.
  • Does the chosen investment align with the SMSF Investment Strategy? The written approach to investing monies in the SMSF.
  • The property asset selected must not be a prohibited asset.
  • Does the fund have sufficient cash flows? The SMSF requires sufficient cash flows to service the loan. Cash flow can only be sourced from income of the asset, other investment earnings or member contributions.
  • Arrangements must be at arm’s length and transacted at market rates.
  • The benefits of the strategy must be weighed against the cost of setting up and maintaining the arrangement, and lost benefits from prior investments.
  • Strategies need to be considered to plan for unexpected events (such as death of a member).
  • Professional investment, taxation and legal advice should be sought before entering into an arrangement.
  • Sole Purpose Test – Ensure that the sole purpose of a SMSF’s investments is to achieve a retirement benefit for the beneficiary. None of the investments in SMSF should enable one to obtain a personal pre-retirement financial gain.
  • Selecting Trustees of the SMSF – The choice of a trustee for the SMSF should be done carefully. The fund’s trustee is the responsible manager of the fund. They hold responsibility over the SMSF’s requirements under law. In the case of someone purchase a property through a SMSF, there is a requirement of two trustee relationships that being:
    • The SMSF trustee.
    • The bare trustee.
  • Importantly, there must be a separation of the bare trustee from the SMSF trustee, i.e. they must be different. This is because under law lenders will not allow assets held in the SMSF name to be used for security against lending. So, the SMSF trustee must be different to the bare trustee. Notably, there only needs to be one trustee company for the bare trusts in the event that two properties are purchased.
  • All cash flow for the property is to go to the SMSF bank account - Cash flows of the property are run to and from the SMSF bank account; any rent, expenses such as maintenance, insurance costs etc. are paid for by the SMSF on behalf of the bare trust. Contributions made to the SMSF have limits and significant penalties exist if these are breached, it is recommended that advice is sought to ensure that these limits are adhered to.
  • Personal Insurance review – Personal insurance such as life cover and income protection are often overlooked when people move their superannuation assets. It is always suggested that an insurance adviser is seen to review insurance needs when purchasing property through a SMSF using debt. This is because when moving super from one fund to another, current insurance is cancelled, often without warning.
  • Bare trust – the bare trust is a structure set up for the sole purpose of holding a specific asset, in this case a property. The tool is used to separate the investment assets for use when obtaining borrowings. A bare trust will not have a bank account, TFN, ABN or trade in any way. It is purely for holding the one asset for the benefit of a beneficiary. Importantly, we should aim to avoid a bare trust being active in any way.
  • The importance of help - financial advice should always be sought when making decisions on superannuation. It is suggested that a financial plan is completed to ensure all issues around a SMSF property purchase are taken care of.
  • What are the costs? SMSF setup costs can vary depending on your unique situation. At Investors Direct we will assess your requirements and ensure all fees and charges are disclosed before proceeding with any advice.


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Investors Direct Financial Group

Investors Direct Financial Group (IDFG) was established in 2001.
Our mission is to help our clients achieve and maintain their financial freedom.

Members of the IDFG Group include:
  • Nanmon Financial Services Pty Ltd, trading as Investors Direct Financial Group (ABN: 52 097 697 820 ; ACL: 402950)
  • ID Property Advisory Pty Ltd (ABN: 69 141 716 412 ; Real Estate Licence: 071792L)
  • Investors Direct Financial Planning Pty Ltd(ABN: 50 141 139 228 ; AFSL: 385827)
  • Investors Direct Property Management Pty Ltd (ABN: 59 153 184 859 ; Real Estate Licence:073458L)
  • 8 Star Homes Pty Ltd (ABN: 83 135 066 876)
  • Investors Direct Financial Services Pty Ltd ACN 608 410 591
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