Would you like to have more control of your investments into your retirement account? Then perhaps appointing yourself as the trustee of a SMSF is the best option, leaving you with the decision-making power of your investments in relation to the fund. Yet with more power comes greater responsibility, and it is now your responsibility to remember that you pay the proper taxes, are following the rules, and making sure that your investment purchases are not in contradiction to the guidelines of the super funds. However, if the thought of having to remember all of these steps to manage your own SMSF is overwhelming, then you may have more success in letting go of the responsibility and letting a retail or industry fund manage your superannuation.
Once you have made the decision to become your own trustee, make sure that you also consider the advice of a professional before opening the SMSF. Review the laws, and carefully go through what is acceptable in terms of contributions (for example, you are not allowed to accept property as a contribution). Then together with the professional, discuss the best plan of action for yourself.
If you considered using a SMSF for buying art for your collection or having a second home in the country, put that consideration the side, as the money is only to be used as retirement savings (allowing for the possibility to purchase investment property), and you will not be able to have access to the money any earlier. Once you understand this concept, then you will be closer to managing your SMSF. Make sure that you keep up to date with your knowledge of retirement laws, investment types, and the basics of investing.
Although you might think you need to be fully independent as you manage your SMSF, be certain to seek the advice of others, such as tax accountants and financial advisors to keep you from making poor choices.
It is important that you take time to assess your finances to be certain you have enough money to run the fund and to be competitive with other superannuation offerings. It is recommended that you should have at least $200,000 before opening the fund, and that you can keep up with the fees each year, which are about $2,000. Besides the fees to maintain the fund, you also need to provide life insurance or other types of insurance for yourself (for example, if you were to have an accident), and for the trust members. If you don’t have the financial capital to keep up with the fees, or even the initial sum of money, wait until you have saved to proceed. In the meantime, study the markets and research investments, as investments earned will go back into your fund, and you will not receive payment for those investments until retirement.
Be wise with investments, especially is you are setting up a SMSF at an older age, as mistakes can lead to large consequences once you are retired. Including other people into your fund also risks their futures, so be certain that you are accumulating the most advice you can get. So when setting-up the SMSF, find someone that could initially help you, such as a SMSF professional. They will help educate you on the laws surrounding super funds, and also offer advice on how to receive tax benefits.
However, it is your decision on what kind of structure for the fund you desire. An SMSF with individual trustees has four members or less, and each member has to also be a trustee. None of the members receive income as a result of their position, and none of them can work for each other (unless they are related).
An SMSF with a corporate trustee sounds like a much larger affair, yet it too can only have four or fewer members. However, an SMSF with a corporate trustee operates like a company, where each member is a director of the trustee company. Similarly to an individual fund, no one receives income for their position.
Trustees in a super fund must be over 18 years old, cannot be involved in bankruptcy, nor have a criminal record. A member in the fund cannot hold a majority of the assets (50% or more). Also, you cannot be disqualified by a regulator.
The management of funds need to be done mainly in Australia, in order to meet the residency requirements, otherwise the fund can be disqualified from tax breaks. Similarly, investments as well must be made in Australia, and you must be careful when travelling abroad for a long time to make sure that your fund is still meeting the requirements.
Having a Trust Deed for your fund is imperative. In the setting-up process, a deed is required, with a legal professional present, and writing down the information in order to qualify the fund. In the deed, list the beneficiaries, as well as the amount of money they’re entitled to. Be sure to list the trustees as well, and each member will be required to sign the deed, as well as provide their tax identification numbers.
Lastly, with the fund almost in place, a bank account needs to be set-up. Registration with the Australian Taxation Office is also a must, as well as supplying them with an investment strategy for the super fund. Your financial advisor can provide assistance with the strategy if you are struggling to write it.
Different contributions can be accepted, as well as ones for members. If you accept them for you members, you can accept employer-mandated contributions for the fund. In adherence to the rules, non-mandated contributions are also acceptable, including individual ones. Be certain that the contributions do not exceed the caps that individuals can make (which are affected by an individual’s age). Rollovers are also acceptable in compliance with tax laws.
Every year, an audit of your fund will be conducted, and you must submit a copy. All of this needs to be done by an approved auditor who is not a trustee of the fund, or benefits from it in any way. Besides having an audit conducted every year, there also needs to be an annual report submitted to the taxation office. Focusing more internally, an earning report needs to be distributed to every member of the trust each year. And on a regular basis, be sure to keep minutes of every meeting you conduct, detailing the decisions made in the process of the meeting. Having copies of all paperwork done when opening the trust is very important to have as well.
When the trustees reach retirement age, they are now entitled to be paid. They may even be allowed to be paid earlier in case of a condition such as a terminal illness. Make sure that when you are handing out the payouts that you file the paperwork and pay the taxes, as well as completing rollover transactions (also requiring taxes). Work closely with tax laws with different types of payment in order to insure a smooth process.
And at the very end when it is ready to close, be ready to sell the assets of the fund, and pass along the money to the specific parties according to trust requirements (which include other super funds). Notify the taxation office that the super fund has been closed, and be certain to send a final audit of the fund.