A Self-Managed Super Fund (SMSF) can offer greater control and flexibility over your retirement savings, but it also comes with important responsibilities and regulatory steps.
Whether you’re considering establishing your first SMSF or planning how to close one effectively, understanding the process is essential to protecting your wealth and staying compliant. In this guide, we’ll walk you through what’s involved at each stage, helping you make informed decisions that align with your long-term financial goals.
What is an SMSF?
A Self-Managed Super Fund (SMSF) is a private superannuation fund that gives you direct control over how your retirement savings are invested and managed. Unlike traditional super funds, an SMSF lets you make the key decisions — from selecting investments to administering your own retirement income. Regulated by the Australian Taxation Office (ATO), an SMSF can have up to six members, who are usually also the trustees. This means you’re responsible for ensuring the fund operates within Australia’s superannuation laws and meets its ongoing compliance obligations.
Setting Up a Self-Managed Super Fund (SMSF)
Ensuring your Self-Managed Super Fund (SMSF) is correctly set up is crucial for being eligible for tax concessions, can receive contributions and is as easy to manage. Here are the steps for creating an SMSF:
- Choose Your SMSF Structure
Deciding on the structure of your SMSF impacts its legal requirements. You need to determine whether to have:
- a single member fund or a multiple member fund; and if you will have
- individual trustees or a corporate trustee.
- Appoint Trustees
Understanding the responsibilities involved when appointing trustees is vital to prevent penalties (for yourself and for the fund). An SMSF can have up to six members, all of whom must either be trustees, or directors if a corporate trustee is appointed.
- Create a Trust Deed
Establish your SMSF legally by creating and executing a trust deed. This document outlines the rules for establishing and operating your fund, and must align with superannuation laws.
- Ensure your fund is an Australian super fund
For your SMSF to be compliant and receive tax concessions, it must be recognised as an Australian super fund throughout the financial year. For this to occur, the fund must meet all three of these residency conditions:
- The fund was established in Australia or owns at least one asset that is located Australia.
- Central management and control of the fund is usually based in Australia.
- Has no active members (members receiving payments) or has active members who are Australian residents holding at least 50% of either a) the total market value of the fund’s assets attributable to super interests or b) the sum of the amounts that would be payable to active members if they decided to leave the fund.
- Holding Assets
Your fund must hold assets to be legally recognised. Trustees typically hold an initial contribution with the trust deed to formally register the SMSF and open a bank account.
- Register Your SMSF
Register your SMSF within 60 days of establishment to ensure it can receive tax concessions and operate effectively. Registration involves obtaining an Australian Business Number (ABN) and a Tax File Number (TFN).
- Set Up a Bank Account
Open a dedicated bank account for your SMSF to keep its finances separate from personal or business accounts.
- Obtain an Electronic Service Address (ESA)
An ESA is necessary for your fund to receive employer contributions via SuperStream, ensuring you can receive both money and data efficiently.
- Create an Investment Strategy
Develop and regularly review an investment strategy that outlines your fund’s objectives and permissible investments. While financial advisers can provide guidance, trustees are ultimately responsible for investment decisions.
- Plan for the Future
Protect fund members from unforeseen circumstances by establishing clear insurance arrangements and death benefit nominations.
- Prepare an Exit Plan
Develop a strategy for potentially winding up your SMSF to simplify the process should the time arise. Each fund’s plan will vary depending on individual circumstances.
For comprehensive guidance on setting up an SMSF, please visit the ATO website.
Winding Up a SMSF
Deciding to close your Self-Managed Super Fund (SMSF) can be driven by various factors, and it’s critical to handle the process correctly to avoid penalties for non-compliance. Here’s a quick guide to on how to close of your SMSF.
Before you start you should consider professional advice. Consulting with an SMSF specialist can provide valuable insights and guidance during the exit planning and winding-up process.
Steps to Wind Up Your SMSF
Review Your Trust Deed: Your trust deed contains crucial guidelines on how to properly dissolve your fund. It may specify actions such as selling off all assets.
Secure Trustee Agreement: Hold a meeting with all trustees to unanimously agree on winding up the fund. Document this decision and have all trustees sign off on it, possibly with electronic signatures to mitigate any future disputes.
Asset Liquidation: Dispose of or sell all the fund’s assets as per the strategic direction agreed upon in your exit plan.
Settle Outstanding Tax & Compliance Obligations: Ensure all reporting, lodgement requirements, and compliance obligations are fulfilled before submitting the final annual return.
Pay Outstanding Expenses: Pay any outstanding or final expenses and tax liabilities to clear the fund’s financial obligations completely.
Distribute Member Benefits: Allocate benefits to members based on their entitlements and conditions of release as stated in the trust deed.
Conduct a Final Audit: Verify that your SMSF has been audited annually since its inception, and ensure a final audit is completed.
Lodge Final SMSF Annual Return: Submit all required annual returns, including the fund’s final return, within the stipulated deadlines.
Notify Relevant Parties: Inform all necessary third parties about the closure of your SMSF to ensure all external relationships and commitments are properly concluded.
Close the Fund’s Bank Account: This should be the last step in the winding-up process to avoid any disruptions in settling the fund.
Navigating the path to setting up and managing your SMSF can be challenging, and many find it beneficial to have knowledgeable advisers by their side. We can help you with the creation, administration, and investment strategies for self-managed super funds.
Not sure if a SMSF is right for you? Our SMSF specialist team can answer all your questions and help you evaluate the benefits and risks based on your situation.
