How to set up a self managed super fund in Australia

Setting up an SMSF is a straightforward administrative process. Deciding whether you should is the harder question, and it comes down to three things: balance, purpose and time.

On balance, the running costs of an SMSF barely move as the fund grows, so the cost as a percentage of your money falls the larger the balance. That is why very small funds tend to compare poorly against a low-cost public offer fund. On purpose, an SMSF earns its keep when you want something a public fund cannot give you — direct property, business real property used by your own business, a specific share portfolio, or the ability to pool a couple's balances into one investable sum. On time, you are taking on legal duties as a trustee that you cannot outsource, even when an administrator does the paperwork.

A self managed super fund is probably not for you if your only reason is to save fees on a modest balance, you have no interest in investment decisions, or you are about to move overseas long-term — the residency rules can make a fund non-complying while you are away. Use the fee comparison calculator to test the numbers against your current fund before you commit.

This is the one decision that is genuinely expensive to reverse, because the fund's assets are registered in the trustees' names. Change the trustees and every asset has to be transferred.

For most new funds the corporate trustee is the better long-run choice, and it is close to essential if the fund will ever borrow. The full comparison, including what a special-purpose company actually is, sits on the corporate trustee page.

Whether you do this yourself or use an administrator, the same eight steps have to happen in roughly this order.

1. Step 1

   Check an SMSF is right for you

   Confirm you have enough combined super to justify the fixed annual running costs, the time to act as a trustee, and a reason for wanting one — control over the assets, holding business real property, or pooling a couple's balances. If you only want cheaper investment options, a low-cost public fund usually wins.

2. Step 2

   Choose your members and your trustee structure

   An SMSF can have up to six members. Every member must be a trustee, or a director of the trustee company. Decide now between individual trustees and a corporate trustee (a special-purpose Pty Ltd), because changing later means re-registering every asset the fund owns.

3. Step 3

   Register the trustee company, if you chose a corporate trustee

   A corporate trustee needs its own company registered with ASIC as a special-purpose superannuation company, and every director needs a Director ID from ABRS before the company is registered. ASIC charges a registration fee for the company and an annual review fee thereafter.

4. Step 4

   Have the trust deed prepared and signed

   An SMSF is a trust, so it legally exists once a trust deed is executed. The deed must comply with the Superannuation Industry (Supervision) Act 1993 and be kept current with the law. Every trustee or director signs it, and each one signs the ATO Trustee Declaration within 21 days of being appointed.

5. Step 5

   Apply for the fund's ABN, TFN and regulated status

   Within 60 days of the deed being signed, apply for the fund's ABN and TFN and elect for the fund to be regulated by the ATO so it qualifies for concessional tax treatment. The ATO issues these registrations free of charge. Processing usually takes a few business days but can take up to 28 days if identity checks are triggered.

6. Step 6

   Open the fund's bank account and set up an Electronic Service Address

   The SMSF needs its own bank account in the fund's name, separate from any personal account, to receive contributions and rollovers and to pay expenses. You also need an Electronic Service Address so employer contributions and rollovers can arrive through SuperStream.

7. Step 7

   Write and sign the investment strategy

   Before the fund invests a dollar, the trustees must prepare a written investment strategy covering risk, return, diversification, liquidity, the ability to pay benefits, and whether to hold insurance for members. Regulation 4.09 of the SIS Regulations requires it to be reviewed regularly.

8. Step 8

   Roll over your existing super and start contributions

   Give your employer the fund's ABN, bank details and Electronic Service Address, then request rollovers from your existing funds. Rollovers move through SuperStream and generally clear within three business days once the fund's details are verified with the ATO.

Almost every delay in SMSF establishment comes from missing information rather than slow processing. Have these ready and the application takes about ten minutes:

• Full legal name, date of birth and residential address for every member
• Tax File Number for every member
• A Director ID for every director, if you are using a corporate trustee
• The fund name you want (check it is not already taken)
• Proof of identity — usually a driver licence or passport
• Details of the existing super funds you intend to roll over
• A decision on the fund's broad investment approach, for the strategy
• Your employer's details, so contributions can be redirected

End to end, a straightforward fund is usually operational within one to two weeks, and can receive rollovers sooner. The variation is almost entirely in two places: the ATO's registration queue and your bank.

You are allowed to set up an SMSF yourself. The ABN, TFN and regulated-fund election are all applied for free of charge through the Australian Business Register and the ATO, and you can buy a trust deed from a document provider. What you are paying an administrator for is the deed being right, the sequencing being right, and someone catching the things that quietly cause problems at the first audit.

The genuinely unavoidable costs are the government ones: ASIC's company registration fee if you use a corporate trustee, and its annual review fee thereafter. The ATO's registrations cost nothing. Everything else — deed, establishment work, ongoing administration and the independent audit every fund must have each year — is a professional fee that varies widely between providers. The setup cost breakdown itemises each one, and our pricing page shows what easySMSF charges.

Establishment is the short part. From the day the fund is registered, the trustees are responsible for keeping the assets separate and correctly held, valuing them at market value each year, reviewing the investment strategy, keeping minutes and records, lodging an annual return, and arranging an independent audit by an ASIC-registered SMSF auditor every single year — including years where nothing happened.

If members are drawing a pension there are minimum payment amounts to meet each year, and contributions are subject to annual caps that change over time. The SMSF administration guide covers the ongoing obligations, and rates and thresholds lists the current caps.