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While the majority of Australians entrust their super fund to a professional superannuation company that invests their contributions on their behalf, self-managed superannuation funds (SMSF) are becoming increasingly popular among Australians who wish to have their own control of their retirement savings. 

In this guide, you will be able to determine whether SMSF is right for you based on the following:

How are SMSFs set up?

In the simplest terms, SMSFs work like a typical superannuation fund — the only difference is that you personally manage the fund and decide how it is invested.

Popularly known as ‘DIY super’, an SMSF must be run for the sole purpose of providing retirement benefits for the members or their dependents.

You need to understand that in order to be eligible for tax concessions, an SMSF must be set up correctly.

Step 1: Assemble your team

Unless you’re an experienced investor, lawyer, financial planner, or SMSF expert, then you’ll need some help (preferably ones who specialize in SMSFs). To begin with, you’ll need a financial planner, a solicitor, an accountant, and an investment strategist.

When choosing the right people to help you, ask the tough questions. Check their fee structures and their accreditation. Financial planners should have a CFP certification and some training in SMSF management.

Don’t be afraid to get a second opinion. And be wary of one-stop shops offering you huge savings on setting up your SMSF. While some may be good, others may not have the expertise in all areas that you need.

Step 2: Appoint trustees

An SMSF can have up to six trustees. You may prefer to be the sole trustee or you may want to include family members or friends. According to the rules, no member can be an employee of another member (unless they are related) and no trustee can be paid for carrying out their trustee duties.

Anyone over 18 can be a trustee, so long as they are not disqualified under SMSF law (ie. someone who has been convicted of an offence involving dishonesty or has been the subject of a civil penalty, is insolvent or bankrupt).

Trustees are responsible for ensuring the fund is properly managed and complies with SMSF rules, as well as tax and legal obligations. Duties of trustees include:

  • Ensuring the SMSF complies with the ‘sole purpose’ test of providing retirement benefits to members

  • Regularly reviewing and updating the SMSF investment strategy to sure it takes into account members’ retirement goals

  • Ensuring that SMSF assets are not used for personal benefit until after retirement

Trustees may also need to appoint parties to carry out various functions on their behalf, including:

  • Maintaining each member’s information and account balances

  • Investing of the fund’s assets

  • Preparing financial accounts, regulatory reports, and audits of financial statements

  • Budgeting and paying for costs and bills (ensuring SMSF money is kept separate from private funds)

  • Accepting contributions and pay benefits (pension and lump sum) in accordance with super and tax laws

Step 3: Obtain a Trust Deed

Once you’ve decided who will be the trustees in your SMSF, you need to sign a declaration and have a trust deed prepared.

The deed serves as evidence of the existence of the trust and establishes the rules of operation for the fund. The declaration must meet all legal requirements and be properly dated and signed by all trustees to ensure that they are aware of their duties and responsibilities under the super laws.

The trust deed will need to set out many aspects, including:

  • Details of who the trustees are

  • How trustees may be appointed (or removed)

  • The powers of trustees

  • Eligibility for membership

  • Conditions relating to acceptance of contributions

  • Conditions for payment of benefits to members

  • Procedures for winding up the fund and provisions relating to valuation of assets, etc

You must ensure your deed is tailored to meet the individual needs of your fund, so having an independent legal professional guide you through this process is highly advisable.

Step 4: Register your SMSF with the ATO

Once your fund is legally established and all trustees have signed a trustee declaration, you need to register your fund with the ATO to be recognised as a regulated fund. Once registered, the fund will be made eligible for that great concessional tax rate.

You will also need to obtain an Australian Business Number (ABN) and Tax File Number (TFN) for the fund. If the annual turnover of the fund is greater than $75,000 you will also need to register for GST. This must be done within 60 days of establishing the fund.

Once a trustee has elected to become regulated, the decision cannot be reversed without winding up the fund and you’ll be legally required to:

  • Lodge an SMSF annual tax return

  • Pay the supervisory levy of $45 per year

  • Have an annual audit report prepared

Step 5: Open a dedicated bank account

It is absolutely essential that you open a separate bank account dedicated to your SMSF as this will keep your super fund assets well away from your personal assets and simplify account-keeping and administration.

You can then use this account to receive any new contributions and/or rollovers from other super funds, pay all fund-related bills and loan payments, and keep track of benefits paid to members. You won’t need to open a separate bank account for each member, but you will need to keep a separate record of their entitlement, called a ‘member account’. Each member account will record member contributions, fund earnings and benefit payments made.

Step 6: Invest

For some high-net-worth individuals, the SMSF structure has proved to be the best thing since sliced bread – or at least one of the best tax-reduction strategies since the invention of negative gearing.  Within certain guidelines you can borrow to invest in shares, property and other assets, leverage off their existing capital to multiply their growth, and pay a great deal less away to the tax man when you come to realise those gains.

When you come to develop and document your SMSF investment strategy it is important to consider the whole circumstances of the fund and the respective needs of the members. An SMSF strategy document is like a mini-business plan for the fund and should account for the following:

  • Relative risk and rewards of your chosen investments

  • Degree of diversification across different asset types and markets

  • Liquidity of the fund with regards to the demands on its cash resources

  • Ability of the fund to discharge its existing and prospective liabilities and debt

What are the types of SMSF?

SMSFs can be classified based on their structure, which can either be composed of individual trustees or corporate trustees.

The two structures differ in terms of many factors:




Structure (Funds with more than one member)

  • 2 to 6 members

  • Each member of the fund must be a trustee, and each trustee must be a member of the fund

  • 2 to 6 members

  • Each member of the fund must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund

Structure (single-member fund)

  • There must be two trustees

  • One trustee must be a fund member

  • The corporate trustee company can have one or two directors, but no more

  • The fund member must be the sole director or one of the two directors


  • No ASIC fees

  • Less set-up and ongoing administrative fees

  • ASIC charges for set-up and annual review


  • The titles of the SMSF’s assets should be changed if an individual trustee is removed or another is added. This can be costly and time-consuming

  • State government authorities may charge a fee for title changes

  • Most financial institutions also charge a fee for title changes

  • Recording and registering assets can be simpler, particularly for changes in membership

  • When a person starts or stops being a member of the SMSF, they become, or cease to be, a director of the corporate trustee

  • The corporate trustee doesn't change, so the titles of the SMSF’s assets are unchanged

Separation of assets

  • Fund assets must be in the fund's name

  • Fund assets must not be combined with personal assets

  • Fund assets must be in the fund's name

  • Fund assets must not be combined with director's personal assets

  • Companies have limited liability, so a corporate trustee offers greater protection if the trustee is sued for damages


  • Administrative penalties are levied on each trustee

  • Administrative penalties are levied on the corporate trustee


  • The fund is unlikely to continue to operate as usual unless an appropriate succession plan has been prepared

  • A corporate trustee continues in the event of a member's death

  • In the event of the death or incapacity of a member, control of an SMSF and its assets by a corporate trustee is more certain


  • Individual trustees have lower loan-to-value ratio

  • Loan-to-value ratios are higher

 What are the advantages of SMSFs?

  • Control: You can invest the money as you fit – in particular companies, an ultra-safe fixed interest term deposit, or even a property to live in when you retire.

  • Choice: You have a wide variety of investment options – bank deposits, direct mortgages, shares, managed funds and direct property.

  • Lower fees: If you have more than $300K in your super, you will generally be able to operate your SMSF for less than the annual management fees charged by a conventional superannuation company.

  • Gearing: You can use gearing and leverage to buy assets such as property or shares to make your investments grow faster.

  • Tax savings: Contributions to your SMSF are tax-deductible and SMSFs allow you to buy other assets and pay a maximum of 15% tax; you can save more tax by targeting franked dividend income and timing the realization of your capital gains carefully.

  • Estate planning: SMSFs can continue indefinitely and surviving family members may enjoy tax-advantaged income after your death.

What are the disadvantages of SMSF?

  • Responsibility: As a trustee, you’ll have to meet super and taxation law – penalties can be very harsh, including hefty fines and imprisonment.

  • Know-how: You’ll need to be savvy about investing to ensure your SMSF is outperforming gains it could have made with a traditional superannuation company. You can appoint advisers or brokers to help you, but that will cost you money.

  • Paperwork: You will be required to meet all your record-keeping and reporting obligations, including annual tax returns, records of transactions and contributions. Relying on experts to handle this aspect will cost you money (but could be worth it).

  • Investment risk: Your SMSF will likely be less diversified than one chosen by a superfund company. Using gearing adds another level of risk.

  • Insurance: While regular super funds sometimes come with insurance coverage, you’ll need to independently source the life, total permanent disability and income protection insurance that you’ll need.

Each SMSF has an investment strategy as unique as the needs of its members and seeking professional advice is highly recommended – at least at the set-up stage.

It is also essential that you keep records of your decisions or ‘minutes’ so that an independent party can assess whether your investment adhered to your fund's investment strategy.

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