- Setting up an SMSF gives you greater control over your retirement savings, but it also comes with significant time, cost, and compliance responsibilities.
- Trustees must follow ATO rules when setting up an SMSF to avoid costly penalties.
- An SMSF can be set up online, but professional advice is strongly recommended.
Australians have two options when it comes to their retirement savings. They can direct their superannuation payments to an industry or retail super fund which will manage investments on their behalf, or they can choose to manage their own fund.
So-called SMSFs allow you to make your own decisions about your investments, and while that may sound like a good proposition, they can be considerable work and are not without their risks.
Managing an SMSF requires a fair amount of investment knowledge and significant time commitment, and unless you outsource some of the tasks involved, be ready for a lot of admin and paperwork.
But if you're willing to do the work, here's how to set up your self-managed super fund.
How to set up an SMSF
Step 1. Assess whether an SMSF is suitable for you
Before setting up an SMSF, evaluate whether it is suitable for your superannuation balance.
Establishing an SMSF entails a laundry list of set-up fees and ongoing expenses, and thus the Australian Taxation Office (ATO) recommends factoring in all the costs involved to determine whether this is right for you.
Additionally, assess your willingness to take on ATO-regulated trustee responsibilities. Work doesn’t end once the fund is set up. Ensuring your SMSF complies with Australian superannuation laws is essential to safeguarding its tax advantages and avoiding costly penalties. These ongoing responsibilities mean this is not something you set and forget.
Step 2. Create the trust and trust deed
An SMSF is set up as a special type of trust, where:
An individual or a company (trustee) holds the assets → For the benefit of the beneficiaries (members)
To establish a trust and ensure its compliance, it requires a trust deed.
The trust deed is a legal document that sets out the rules for establishing and operating the fund. It covers the fund's objective, who can be a member, how benefits are paid, and wind-up clauses.
Accordingly, the trust deed must be:
- Prepared by someone competent to do so as it is a legal document
- Signed and dated by all trustees
- Properly executed according to state or territory laws
- Regularly reviewed, and updated as necessary
Together, the trust deed and superannuation laws will form the fund's governing rules.
Step 3. Appoint trustees and choose your members
An SMSF can have up to six members. Once you've chosen how many members your fund will have and who they are, you'll need to choose whether you'll have a corporate trustee structure or an individual trustee structure.
See also: What does it mean to be an SMSF trustee
- With a corporate trustee, a company acts as a trustee, which means each member will be a company director.
- An individual trustee structure means each member will be a trustee. If one member leaves, the structure must change.
In either case, all members of the SMSF are responsible for the fund's decisions and for complying with SMSF laws.
Can I set up an SMSF with only one member (me)?
Yes. However, if you’re the only member of the SMSF, you must appoint a second trustee, who can be a relative, friend, or a person not employed by you (unless they are a relative). The second trustee’s role is simply for compliance as SMSF regulations require at least two individual trustees to establish the fund.
All trustees must sign a declaration saying they have read and understood their responsibilities within 21 days of becoming a trustee or director.
Step 4. Register the SMSF
Once the fund is established and all trustees have been appointed, register your SMSF with the ATO within 60 days of its creation.
A trustee or an accountant can do this by applying for an Australian Business Number (ABN) and tax file number (TFN) online or via the tax office’s Business Registration Service.
The SMSF’s ABN and TFN are the identifiers you will use to lodge annual returns and interact with the ATO.
Step 5. Create an investment strategy
An investment strategy serves as the SMSF’s blueprint for how it will manage and invest its assets, such as investing in property. It must set out why and how you've chosen your investments, and how these investments are going to meet each trustee’s retirement objectives.
Interested in purchasing a property through your SMSF? This table below features SMSF loans with some of the most competitive interest rates on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.89% p.a. | 6.91% p.a. | $3,290 | Principal & Interest | Variable | $0 | $230 | 60% |
| Promoted | Disclosure | ||||||||||
7.14% p.a. | 7.19% p.a. | $3,374 | Principal & Interest | Variable | $0 | $220 | 70% | Disclosure | ||||||||||||
7.24% p.a. | 7.26% p.a. | $3,407 | Principal & Interest | Variable | $0 | $230 | 80% | Disclosure |
With this also comes the responsibility of regularly reviewing this strategy, at least once per year or as circumstances change.
See also: Creating an SMSF investment strategy
According to the ATO, there are five things your fund’s investment strategy must cover:
- Risks involved in making, holding, and realising, and the likely return from your fund's investments regarding its objectives and cash flow requirements.
- Composition of your fund's investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification.
- Liquidity of the fund's assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses).
- Fund's ability to pay benefits (such as when members retire and require a lump sum payment or regular pension payments) and other costs it incurs.
- Whether to hold insurance cover (such as life, permanent, or temporary incapacity insurance) for each SMSF member.
The ATO also states that the document should be 'tailored and specific' to your circumstances rather than merely tick legislative boxes.
SMSFs are legally required to have a documented investment strategy to support the sole purpose test and guide trustees' decision-making.
- What is sole purpose test? Essentially, the sole purpose test aims to ensure each action taken by the SMSF is for the sole purpose of providing retirement benefits to beneficiaries of the SMSF.
Step 6. Set up an SMSF savings account
An SMSF savings account works like a regular savings account but allows each trustee access and is used to receive contributions and pay benefits. It is also a legal requirement of setting up an SMSF.
An SMSF bank account must be unique to the fund, in the fund name, and reported to the ATO.
See also: Savings accounts for SMSFs and how they work
Step 7. Arrange contribution system
You'll need to set up an electronic service address for employers to pay contributions to your SMSF. You'll also need to organise arrangements for any rollover of funds from other super funds.
Here are the two types of contributions:
Concessional contributions
This typically includes employer contributions, salary sacrifice contributions, and personal contributions.
Non-concessional contributions
Non-concessional contributions include any personal contributions for which a member does not claim a tax deduction.
Step 8. Prepare an exit strategy
Every investment should have an exit strategy prior to the investment being made, and an SMSF is no different. This should account for
- The fund no longer being cost-effective
- Trustees becoming ill, dying, or moving overseas
- Relationship breakdowns
- Wanting to move to another fund
The ATO recommends addressing potential exit scenarios, including ensuring all trustees have access to the SMSF's records and accounts, incorporating specific wind-up clauses in the trust deed, and encouraging members to make binding death nominations to avoid disputes and ensure the timely distribution of funds.
If trustees decide to wind up the SMSF, the formal process typically includes the following:
- Checking the trust deed to understand the requirements it specifies about winding up the fund
- Getting a written agreement that all trustees agree with the decision
- Selling or disposing of all the fund's assets
- Finalising tax and compliance obligations
- Paying any outstanding expenses and tax liabilities
- Distributing member benefits
- Appointing an SMSF auditor to complete the final audit
- Lodging all outstanding SMSF annual returns (SAR) and the fund's final return
- Notifying third parties of the wind-up (employers, SMSF professionals, and ASIC for corporate trustee structure)
- Closing the fund's bank account
- Take note: Once the SMSF is wound up, it cannot be reactivated. And if your SMSF has been found non-compliant, winding up won't prevent compliance action.
Step 9. Appoint an auditor
SMSFs are legally required to be independently audited by an ASIC-licensed auditor each year. While you don’t need to appoint one immediately, appointing one when setting up the fund can save time and stress down the track.
Savings.com.au's two cents
Setting up an SMSF can give you more control and flexibility over your retirement savings, but with it comes responsibilities that don't stop once the paperwork is done. Before taking the plunge, weigh up whether an SMSF genuinely suits your financial situation and appetite for hands-on management. Get professional advice if you're unsure.
What are the advantages of setting up an SMSF
A major draw of establishing an SMSF is the flexibility to blaze your own path to retirement. Here are common reasons some Australians choose to set up their own fund.
Greater control over your investments
With you in the driver seat as a trustee, you have direct control over where your retirement savings are invested.
You can tailor your choices to your financial goals and risk tolerance, decide when to buy and sell, and adjust the portfolio when needed without waiting for a fund manager's approval.
Broader investment choice
Depending on your strategy and compliance with super laws, your SMSF can invest in direct Australian and international shares, term deposits and cash, or residential and commercial properties.
Note, however, that buying property through your SMSF is subject to strict rules, one of which is that you cannot live in a residential property purchased through the SMSF.
See also: How to buy a property through an SMSF in Australia
Tax management flexibility
Setting up an SMSF may also provide greater control over tax outcomes, including the timing of the sale of assets, strategic use of the pension phase, and managing contributions and pension payments.
To ensure compliance, make sure to seek professional advice.
How much does it cost to set up an SMSF
There are several upfront costs associated with setting up an SMSF.
Typical expenses include:
- Preparation of the trust deed – around $300-$800
- Fees for professional assistance – from $500 up to $2,000
- ASIC company registration – $576 (for corporate trustee setup)
The estimated total setup cost could run from around $1,200 to $3,000, depending on structure and service level.
- Quick tip: Once set up, you also need to account for the SMSF’s ongoing operating expenses and investment costs.
See also: A guide to SMSF fees
How long does it take to set up an SMSF
Setting up an SMSF can often be completed within 1-2 business days, assuming you have documentation in order. This covers legal establishment and accounting work.
After that you have 60 days to register the fund with the ATO by applying for an ABN and TFN.
In most cases, the ABN and TFN will be issued instantly.
The ATO performs checks, and barring no items requiring manual review, the SMSF application will be approved and appear as 'Registered' within 2-5 business days on Super Fund Lookup.
If ATO flags a review (e.g. due to name or address mismatches, previous tax issues, etc.), resolution may take up to 20 business days with a further review window extending up to 56 days in total.
Within 7 days of the SMSF being displayed as 'Registered', a Notice of compliance will be issued to the SMSF and their Super Fund Lookup status will then be displayed as 'Complying'.
How to avoid costly mistakes when setting up an SMSF
Before setting up an SMSF it's important to have a purpose and a goal, and a broader understanding that you are setting aside money for your retirement, and that you have a plan to further every dollar that is made/saved.
You must also be prepared to educate yourself and remain up to date with any changes in regulation and policy.
Ignorance is never an excuse for non-compliance.
If in any doubt, seek expert, professional advice to ensure you are set up correctly, and if you are using an adviser, ensure you have a statement of advice.
Can I set up an SMSF online?
Yes, you can set up an SMSF online.
Online SMSF establishment service may be provided by accounting firms, SMSF administration platforms, and specialist SMSF providers.
These services typically allow you to complete the setup online, including creating the trust deed, choosing individual or corporate structure, and registering the fund with the ATO.
But do I still need advice?
While it isn’t a legal requirement, the ATO strongly recommends getting professional advice before setting up an SMSF even if done online.
As it stands, online services generally do not assess whether an SMSF is suitable for you, so you may want to consider getting advice from a qualified professional.
