If you’re looking for greater control over your retirement savings, a Self-Managed Super Fund (SMSF) could be the right choice. SMSFs allow you to manage your superannuation investments directly, offering flexibility and potential tax benefits. However, they also come with strict compliance requirements.
In this guide, we’ll cover everything you need to know about setting up an SMSF, including key considerations, legal obligations, and the roles of SMSF services, SMSF accountants, SMSF audits, SMSF administration, and tax returns.
What is an SMSF?
An SMSF is a private superannuation fund that you manage yourself, unlike traditional super funds run by financial institutions. With an SMSF, you (and up to three other members) act as trustees, making investment decisions and ensuring compliance with Australian super laws.
Key Benefits of an SMSF
- Greater investment control (shares, property, cryptocurrencies, etc.)
- Potential tax advantages (lower tax on earnings, capital gains tax concessions)
- Estate planning flexibility (binding death benefit nominations)
- Consolidation of super assets (combining multiple accounts)
However, SMSFs require active management, compliance with regulations, and professional support from SMSF accountants and auditors.
Steps to Set Up an SMSF
1. Decide if an SMSF is Right for You
SMSFs are best suited for those with a higher super balance (typically $200,000+) due to setup and running costs. Consider:
- Do you have the time and expertise to manage investments?
- Can you afford administrative and compliance costs?
- Are you comfortable with legal responsibilities as a trustee?
2. Choose Your SMSF Structure
You can set up an SMSF as either:
- Individual Trustees (each member is a trustee)
- Corporate Trustee (a company acts as trustee, offering better asset protection)
A corporate trustee is often recommended for ease of management and succession planning.
3. Create a Trust Deed
The trust deed is a legal document outlining how your SMSF operates, including:
- Membership rules
- Investment strategies
- Benefit payment conditions
- Dispute resolution processes
An SMSF specialist or lawyer should draft this to ensure compliance.
4. Register Your SMSF with the ATO
Once your trust deed is signed, you must:
- Obtain an Australian Business Number (ABN)
- Register for Tax File Number (TFN)
- Elect to be regulated by the ATO
- Set up a separate bank account for the fund
5. Develop an Investment Strategy
Your SMSF must have a documented investment strategy that considers:
- Risk tolerance
- Diversification
- Liquidity needs
- Insurance for members
An SMSF accountant or financial adviser can help structure this.
6. Roll Over Existing Super into Your SMSF
Transfer funds from your existing super accounts to your SMSF. This process can take a few weeks.
7. Appoint an SMSF Auditor
By law, SMSFs must undergo an annual SMSF audit by an approved auditor to ensure compliance.
8. Lodge Annual Tax Returns
Your SMSF must submit an:
- Annual return (SAR) to the ATO
- Financial statements
- Audit report
An SMSF accountant can handle tax lodgements efficiently.
Key Compliance Requirements for SMSFs
Sole Purpose Test
Your SMSF must be maintained solely for retirement benefits (or dependents in case of death).
Restrictions on Lending & Borrowing
Limited borrowing is allowed under a Limited Recourse Borrowing Arrangement (LRBA), typically for property investments.
Prohibited Transactions
You cannot:
- Use SMSF assets for personal benefit
- Lend money to members or relatives
- Invest in collectibles (art, wine, cars) unless strict rules are followed
Annual SMSF Audit
An independent SMSF audit ensures compliance with super laws. Non-compliance can lead to penalties or fund disqualification.
Why You Need Professional SMSF Services
Managing an SMSF involves complex legal, tax, and investment responsibilities. Key professionals include:
1. SMSF Accountant
- Prepares financial statements
- Handles tax returns and lodgements
- Advises on tax-efficient strategies
2. SMSF Auditor
- Conducts mandatory audits
- Ensures compliance with ATO regulations
3. SMSF Administration Services
- Manages record-keeping
- Processes contributions and rollovers
- Prepares annual compliance documents
4. Financial Advisors
- Helps with investment strategies
- Ensures diversification and risk management
Common SMSF Mistakes to Avoid
- Failing to keep proper records (penalties apply)
- Mixing personal and SMSF funds (breaches sole purpose test)
- Missing deadlines for audits and tax returns (ATO fines)
- Investing without a strategy (can lead to poor returns)
Is an SMSF Worth It?
An SMSF can be highly rewarding if:
- You have a large super balance
- You want more investment control
- You’re willing to comply with regulations
However, if you lack time or expertise, a traditional super fund may be simpler.
Final Thoughts
Setting up an SMSF offers flexibility but requires strict compliance. Engaging SMSF services, accountants, and auditors ensures smooth operations. If managed well, an SMSF can be a powerful tool for growing your retirement savings.
