How to set up a Self Managed Super Fund
We recommend you engage the services of a Financial Planner or Accountant so there is a professional overview of the total transaction. Using a professional to do the SMSF set up will give you confidence that the correct procedure has been applied.
Setting up a Trust for the SMSF is the starting point. You may need a separate Bare Trust as well if a Property purchase is involved. There are several suppliers for this type of service, each offering different service levels corresponding to the price. We recommend that your self managed super fund set up is done with a group that has extensive experience with these types of transactions. Naturally, because there are so many other aspects to your financial position, a SMSF set up should be part of a Financial Plan. That way, any issues around rollovers and finance for any property purchase can be incorporated and managed like pieces to the puzzle. In any case, a financial adviser must sign off on your loan to confirm the viability of your purchase.
The Corporate Trustee and SMSF require an Australian Business Number as well as a Tax File Number. These would be applied for through ASIC as part of the process of the SMSF set up and can take up to 28 days to be issued.
Another important step is to review your Insurance position. A Financial Planner is well placed to take you through this part of the process. It’s critical to complete this step as a Rollover often triggers the cancellation of any insurances attached to the existing superannuation fund. As you can imagine, losing an existing Insurance policy is not a good result if you cannot replace or renew the policy depending on your current circumstances.
Once you are comfortable with changing over to a Self Managed Superannuation Fund, the Rollover procedure can commence. This is done by providing an approved rollover form, Certified Identification, the SMSF compliance letter and documentation proving the SMSF’s existence which is sent to the existing Fund for processing as required. As you can see, seeking professional help can provide guidance and clarity on each of these points as well as speeding up the process itself.
A Cash Management Account for the SMSF should be opened next. This account will be where the Employer Superannuation Contributions will go or, if you are Self Employed, where you put your contributions. Your super contribution, a spouse contribution and even excess concessional contributions should be directed to the newly set up SMSF account. Employers send their Contributions to Super Funds via a service called Superstream. SuperStream is the way businesses must pay employee superannuation guarantee contributions to super funds. With SuperStream, money and data are sent electronically in a standard format. SuperStream transmits money and information consistently across the super system – between employers, funds, service providers and the ATO. Therefore you need an account that has an electronic address complying with the Superstream model.
We recommend that you make sure you fully understand any consequences of changing super funds, such as fees, charges and any potential loss of investment capability. This is a discussion to have with your Financial Planner before any rollovers are triggered
Every SMSF requires a Compliance Letter and Investment Strategy document which details investments approved by the fund – this will be provided when the SMSF is being set up. Without this document rollovers may be held up.
When the rollover has been completed and the funds are placed in the new SMSF account, refunding of set-up costs, paid out to set up the fund, can be arranged. Maintaining receipts is essential and it is also important that any deposit required for a property purchase should only be paid after the SMSF is in existence.
Consider these points carefully
- Is the SMSF Deed appropriate for borrowing purposes?
- Does the chosen investment align with the SMSF Investment Strategy? 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. Arrangements must be at arm’s length and transacted at market rates.
- Strategies need to be considered to plan for unexpected events such as death of a member.
- Sole Purpose Test – Ensure that the sole purpose of a SMSF’s investments is to achieve a retirement benefit for the beneficiary.
- Selecting Trustees of the SMSF –The fund’s trustee is the responsible manager of the fund.
- Personal Insurance review – Personal insurance such as life cover and income protection are often overlooked when people move their superannuation assets, so we strongly recommend reviewing your insurance needs with your Financial Planner.
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 importance of help - financial advice should always be sought when making decisions on superannuation. We suggest that a financial plan be completed to ensure all appropriate issues around a SMSF property purchase are taken care of.
Consider the costs. SMSF setup costs can vary greatly depending on your situation.
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