Making the decision to set up your own self-managed superannuation fund (SMSF) is just the first of many other important decisions you will be called upon to make, and these decisions will impact on the performance of your fund. Getting it wrong with this first decision would not be an ideal start, so the recommendation from people in the industry is to talk to a professional advisor before going ahead.
What is this decision that is so vital that you should be seeking advice at the onset? There is plenty of advice available regarding the different types of investments available; the Australian Securities and Investments Commission (ASIC) has some general information available on their web page, but it is the Australian Taxation Office (ATO) web page that sets out the two types of structures you can have for your fund.
Getting the structure right at the beginning is a much easier option than trying to change it after everything has been set up. You can choose between setting up a corporate trustee and using an individual trustee. There are benefits and limitations to both, and the chances are that only one will be appropriate for your individual needs.
There are several areas where the structures differ from each other. The first is in the member and trustee requirements. A fund with an individual trustee must have two to four members only; each member of the fund must be a trustee and each trustee must be a member. Also, a member cannot be an employee of another member unless there is a family relationship.
An SMSF with a corporate trustee has one to four members; each member must be a director of the corporate trustee and each director of the corporate trustee must be a member. The employee/relative requirement is the same as the individual trustee.
A further complication occurs when the fund has a single member. In an individual trustee structure, there must be two trustees, one of whom is the fund member. If the fund member is an employee of the other trustee, they must be related to each other. With the corporate trustee structure, 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, and again, the employee/relative requirement is similar.
Now to the cost. The individual trustee structure does not attract any ASIC fees, so establishment and ongoing administration fees are lower. ASIC charges a fee to register a corporate trustee initially and there are annual review fees with additional conditions. In both cases, trustees or directors cannot be paid for their services in relation to the fund.
These are just the first two issues to understand and deliberate. The ownership of fund assets, the separation of assets, the penalties for breach of superannuation law and succession issues are the others. There are companies such as SMSF Assure that can assist you to set up your fund to suit your requirements. Why go it alone when there is professional assistance readily available?