For some business owners, a self-managed super fund can provide greater control over investment decisions and retirement planning. However, an SMSF is not a simple investment account. It is a regulated trust with ongoing legal, tax and reporting responsibilities.

Before establishing an SMSF, business owners should understand both the potential benefits and the work involved in running one.

Step 1: Decide whether an SMSF is suitable

An SMSF may provide control over investments such as listed securities, commercial property and other permitted assets. It can also form part of a broader business succession or retirement strategy.

However, trustees are responsible for complying with superannuation and tax laws. They must arrange an annual audit, maintain records, value fund assets and lodge an annual return.ato

An SMSF may not be appropriate if you do not have the time, knowledge or resources to manage these obligations.

Step 2: Choose the trustee structure

An SMSF can generally have:

• Individual trustees.
• A corporate trustee.

With individual trustees, members act as trustees in their personal capacity. With a corporate trustee, a company acts as trustee and the members are generally directors of that company.

The appropriate structure depends on factors such as cost, administration, succession planning, asset ownership and the number of members.

Directors of a corporate trustee must obtain a director ID before the SMSF is registered.ato

Step 3: Appoint the trustees

Each member of the SMSF generally becomes a trustee or director of the corporate trustee, subject to specific eligibility rules.

Trustees must understand their responsibilities before signing the trustee declaration. These responsibilities include:

• Acting in the best interests of members.
• Meeting the sole purpose test.
• Complying with investment restrictions.
• Keeping SMSF assets separate from personal and business assets.
• Arranging the annual audit.
• Preparing financial statements.
• Valuing assets at market value.

Step 4: Create the trust deed

The trust deed establishes the SMSF’s legal rules. It should be prepared or reviewed by an appropriately qualified professional and should work together with the superannuation legislation.

The deed may address matters such as:

• Trustee powers.
• Member benefits.
• Investment authority.
• Death benefit payments.
• Contributions.
• Trustee appointment and removal.
• Borrowing arrangements, where legally permitted.

Step 5: Establish the SMSF and register it

An SMSF cannot be registered with the ATO until it has been legally established.

The establishment process includes choosing the structure, appointing trustees, confirming the fund is an Australian superannuation fund, creating the trust deed and holding assets in the fund’s name. Once established, the fund generally has 60 days to register with the ATO.ato.gov

The SMSF must apply for:

• An Australian business number.
• A tax file number.
• A complying SMSF registration with the ATO.

Step 6: Open a bank account

The SMSF should have a separate bank account in the fund’s name. Fund income, contributions, expenses and investment transactions should flow through this account.

Business owners should never mix SMSF money with business or personal funds. A separate account helps demonstrate that the fund is being operated correctly and makes administration easier.

Step 7: Obtain an electronic service address

An electronic service address is generally required to receive electronic contribution information and transact through SuperStream.

Your administrator or SMSF service provider can assist with arranging this.

Step 8: Prepare an investment strategy

An SMSF must have an investment strategy that explains how investments support the fund’s objectives and members’ retirement goals.

The strategy should consider:

• Diversification.
• Liquidity.
• Risk and expected returns.
• Insurance needs.
• The personal circumstances of members.
• The fund’s ability to pay benefits and expenses.

The strategy must be implemented and reviewed regularly.ato

Step 9: Arrange an annual audit and lodge returns

Every SMSF must have an approved auditor review its operations each financial year. The fund must also prepare financial statements and lodge its annual return.

Good records should be maintained for contributions, investments, valuations, expenses, trustee decisions and member benefits.

Is an SMSF right for your business?

An SMSF can be a valuable part of a business owner’s wealth strategy, but it should not be established solely to buy a particular asset or achieve a short-term tax outcome.

Agilis CA can help you assess whether an SMSF fits your long-term goals, establish the correct structure and manage your ongoing compliance obligations.

Thinking about setting up an SMSF? Speak with Agilis CA before making a decision.