An SMSF is a type of trust, which means it needs to have assets, beneficiaries and a trust deed that outlines the rules for establishing and running the SMSF.
It’s a legal document that needs to be properly prepared and signed by the trustees. It must also adhere to state or territory legislation, and be regularly reviewed and updated.
Additionally, your SMSF should have a documented investment strategy, as well as a planned exit strategy.
Regulation and legislation
Once established, your SMSF should be registered with the regulator of SMSFs, the ATO.
The ATO is responsible for administering the super and income tax laws governing SMSFs.
You need to apply for the fund to be regulated so it’s eligible for tax concessions. It also needs to have an ABN and TFN.
Annual tasks an SMSF must complete include:
Appointing an independent, Australian Securities & Investments Commission (ASIC) approved auditor to conduct annual audits of your fund.
Preparing an annual balance sheet and profit and loss statement.
Valuing the fund’s assets at market value.
Preparing annual member statements.
Preparing the annual trustee resolutions and minutes.
Preparing and lodging the annual income tax return and annual report with the ATO.
You may also need to submit annual documentation that ensures you are in compliance with reporting requirements.
This includes preparing several documents for approval, such as annual balance sheets, profit and loss statements, and annual member statements, as well as preparing and lodging annual income tax returns.
Your SMSF advisor may be able to assist you with the compilation and submission of these forms.
As set out by the ATO, an SMSF must keep ‘proper and accurate’ tax and super records and make them available to the SMSF’s auditor or the ATO on request. This includes documenting investment decisions.
It’s also your responsibility to notify the ATO within 28 days of any changes to trustees, directors, members, contact details or fund status.
Contravening the super laws can result in serious penalties being applied by the ATO.
These range from education directives to disqualification of a trustee, financial penalties for trustees, or winding up or freezing an SMSF’s assets.
Running your own SMSF is a big financial decision, so if the obligations sound too onerous, consider seeking professional advice before jumping in.
Look for a provider that is licensed with the ATO and ASIC to administer all aspects of an SMSF's compliance obligations, including a fund's financial statements, tax returns and audits, for a low, set annual fee, regardless of your fund’s balance.
If you want to learn more about SMSFs, download an today.