Being young, ambitious and hard-working is the IT combo for succeeding in your carreer and making good cash. But just before you start spending all that hard-earned money on lavish vacations and fancy cars, you’ll need to first figure out one very important thing – your retirement plan. I bet you’re thinking that I’m talking nonsense, ’cause you just got your first job and now you’re supposed to think about something that’s going to happen maybe 40 years from now?
Well, welcome to the grown up world where you have to think in advance and plan everything carefully. In the end, it’s your responsibility if the seeds you sow today will multiply tenfold when you reach old age or will just result in a poor harvest. For this reason, many young individuals have decided to establish an SMSF. But what exactly does it involve?
A Self Managed Super Fund is a private superannuation fund that you yourself manage, unlike other super options. This means having complete control over everything – from investment decisions to making sure the fund runs properly and according to the Australian Taxation Office’s laws. Before setting up an SMSF, you’ll need to choose one of two structure options – individual trustees or a corporate trustee. An individual trustee SMSF must have between two and four members. Each member must be a trustee and each trustee must be a member. This is the more popular structure with 65% of all SMSFs. With this structure there are no establishment costs for setting up a company, less annual fees and less administrative paperwork.
The laws governing SMSFs do not allow for an individual to be the only trustee of an SMSF. But by involving a company in the SMSF, the person essentially finds another entity to act as a trustee. When a company is a trustee, all the members must be directors of the company. This is a more expensive option because it requires paying charges for registering a company but it can be very convenient and save time and even money for a fund with fluctuating membership where people constantly join or leave. A corporate trust will not require to change the ownership name every time that happens which can be very expensive and time-consuming.
Once you’ve made your structure pick and have determined the fund’s members, you’ll need to agree on an investment strategy. This means deciding the amount of contributions going into the fund in the accumulation stage as well as how those finances will be later used. After doing so, all members need to sign a trustee declaration within 60 days to enter the tax and super systems. This declaration is a legal document clearly stating each member’s duties, powers and investment restrictions. An important requirement concerning both SMSF options is that each year an audit has to be carried out by an approved SMSF auditor.
There are many others tiny but important regulations set up by the ATO regarding SMSFs, so before you proceed to sign up for it, you’ll need to do a lot of reading and consulting with professionals. Setting up an SMSF is serious matter so it’s best to hire a reliable SMSF expert.