Once the decision is made to set up a SMSF, there are steps that must be followed to get it established. There are five key steps to establishing a SMSF. Each step should be accomplished in order to move onto the next and ultimately have a compliant SMSF that reaps benefits.
Step 1: Establish the Trust
Establishing the trust is the first step because it outlines what the strategy of who, what and how. This is where there must be an intention for the trust to be created. In addition, the members or trustees should be known, the members must have identifiable beneficiaries, and there must be assets in mind and available that will be held in the trust.
Step 2: Procurement of the Trust Deed
It is important to have a well outlined trust deed. This is the legal document that sets out the conditions and the regulations for the SMSF to operate in a compliant manner. It is best to have this document drawn up by a qualified legal expert who is aware of superannuation laws, especially those surrounding SMSFs.
The trust deed should be written in a way to ensure flexibility for the members and maximise their control. Trust deeds include the strategies that will allow the trust to target its goals, rules as to how it may be amended in the future, how it will pay out pensions, and how each member’s account is calculated and credited.
Step 3: Signing of the Declaration
All members becoming trustees, or the directors of a corporate trustee, must sign a declaration within 21 days of being appointed. This declaration must be kept for a period of 10 years in case requested by the ATO. The declaration, which can be procured from the ATO, is to ensure that trustees know their obligations and responsibilities. These include acting honestly and in the best interest of all members, to exercise care and diligence, to manage responsibly, to ensure assets are separated from personal or business assets, to formulate and implement a sound investment strategy, and to provide information for members where necessary.
Step 4: Registering with the ATO
Trustees must register with the ATO within 60 days of establishing the SMSF. The registration is irrevocable and acts as an advisement to the ATO that the trust will comply with superannuation laws. This entitles the SMSF to concessional taxation. Without registering, the trust will be deemed non-compliant and will be subject to high marginal tax rates.
Step 5: Opening a Cash Bank Account
A SMSF trustee must open up a cash bank account in the trust’s name. This bank account will be used to receive any kind of contributions such as investment earnings and rollovers. The bank account will also be used to make any payments necessary for the SMSF to operate. This includes operational payments such as accounting fees, specialist assistance, annual supervisory levies, taxation liabilities, and benefits paid to members.