What factors should you consider before setting up an SMSF

Introduction

The SMSF sector continues to grow steadily in Australia. In the March 2025 quarter alone, 9,956 new funds were established. This brings the total number of active Self-Managed Super Funds to 646,168, with almost 1.2 million Australians now managing their own retirement savings.

If you are also considering setting up an SMSF, this blog will guide you through the key information you need to know before getting started. From legal responsibilities to compliance requirements, understanding what is involved can help you decide whether this structure suits your personal circumstances and long-term financial goals.

What is an SMSF?

A self-managed super fund (SMSF) is a private superannuation fund set up and managed by individuals to save for their retirement. It is a type of trust where the members are also the trustees, meaning they are responsible for managing the fund’s investments, complying with superannuation laws, and ensuring the fund is used only to provide retirement benefits. An SMSF can have up to six members, and it must be operated solely for the benefit of those members in retirement.

Key factors to consider before setting up an SMSF

The following points highlight key considerations to be aware of before taking the first step toward establishing your own SMSF.

1. Purpose of the fund

An SMSF must only be used to provide retirement benefits to its members. Every decision you make, from choosing investments to paying insurance premiums, must support that purpose. Using the fund for any other reason, including early access to super, is a breach of the law and comes with serious consequences.

2. Your legal role as trustee

When you start an SMSF, you take on the role of trustee, or become a director of a company that acts as trustee. This makes you personally responsible for running the fund according to superannuation and tax laws. You must manage investments, oversee reporting, prepare financial statements, arrange independent audits, and keep clear records. If anything goes wrong, you are accountable.

3. Knowledge, time, and decision-making

Running an SMSF isn’t just about choosing where to invest your money. It involves regular attention to compliance, legal obligations, and ongoing decision-making. You need to be confident in your ability to understand financial matters or be willing to work closely with professionals who can support you. If you are not prepared to stay involved year after year, a traditional super fund may be a more suitable option.

4. Financial commitment

There is no official minimum balance required to start an SMSF, but both the ATO and many financial professionals suggest it becomes more cost-effective when the fund has at least $200,000 to $250,000. This is because SMSFs often come with fixed annual costs, which can take up a larger portion of a smaller balance.

You will need to budget for:

• Fund setup and trust deed
• Annual ATO supervisory levy
• Independent audit
• Legal or actuarial advice if required
• Valuation of fund assets
• Professional support (accountants, administrators)
• Insurance premiums, if arranged through the fund

These costs occur every year, regardless of the fund’s investment performance.

6. Insurance for members

You must consider whether insurance cover is needed for any member of the fund. This may include life cover, total and permanent disability insurance, or income protection. These policies can be paid from the SMSF, but the premiums are often higher than those offered through retail or industry super funds, which usually have discounted group rates.

If you are transferring your entire balance into an SMSF, it’s important to check whether you will be losing existing insurance benefits that you may not be able to replace at the same price or level of cover.

7. Regulatory oversight and legal risks

The ATO regulates SMSFs and holds trustees responsible for complying with all requirements. If your fund breaches the law, the consequences can be serious. These may include financial penalties, disqualification as a trustee, forced closure of the fund, or the loss of the fund’s tax concessions.

Unlike public funds, SMSFs do not have access to compensation schemes if things go wrong. If your fund is affected by fraud, theft, or bad advice, you are unlikely to receive financial assistance from the government. You also won’t have access to complaint resolution bodies like the Australian Financial Complaints Authority, which means legal disputes must be handled privately or in court.

8. Winding up and exit planning

An SMSF doesn’t run itself, and it doesn’t automatically close when members retire or leave. If a member dies, becomes unwell, or wants to exit the fund, you must manage the process, which may involve selling assets, finalising tax obligations, arranging rollovers, and submitting final reports to the ATO.

This can become complicated if there is property involved or if the fund holds illiquid assets. Before you set up an SMSF, it’s worth thinking about how you would manage changes to the fund in the future.

Process of setting up an SMSF

Step 1: Choose your trustee structure

The first decision is whether your SMSF will have individual trustees or a corporate trustee.

• An SMSF can have up to six members.
• If using individual trustees, each member must be a trustee.
• If using a corporate trustee, each member must be a director of the company.

Corporate trustee structures generally offer more flexibility when members join or leave, and make it easier to manage legal ownership of assets.

Step 2: Appoint trustees and ensure eligibility

You must formally appoint the trustees or directors and confirm they are eligible to act in that role.

Each trustee must:

• Consent in writing to their appointment
• Be over 18 and not be disqualified by the ATO
• Be capable of understanding and accepting their responsibilities

Step 3: Create the trust deed

The trust deed is a legal document that outlines how the SMSF will operate.

It should cover:

• The powers and responsibilities of trustees
• Member rights and conditions
• How benefits are paid
• Rules around investments, reserves, and winding up the fund

A qualified lawyer or SMSF service provider should prepare this document to ensure it meets legal requirements.

Step 4: Establish the trust

To officially create the SMSF as a trust, you need:

• The signed trust deed
• Trustees or a corporate trustee in place
• Identifiable beneficiaries (members)
• Assets (this can start as a nominal amount)
• Intention to form a trust

Once these are in place, the SMSF is formally established.

Step 5: Sign the ATO trustee declaration

All trustees or directors must complete and sign the ATO’s official SMSF trustee declaration within 21 days of their appointment. This declaration confirms they understand their legal duties and obligations. A copy must be kept for at least ten years.

Step 6: Register the SMSF with the ATO

You must register your fund with the Australian Taxation Office within 60 days of establishment.

Registration includes:

• Applying for an Australian Business Number (ABN)
• Applying for a Tax File Number (TFN)
• Making an election to be regulated so the fund qualifies for tax concessions

To avoid errors or delays, many trustees choose to work with a qualified tax accountant during this stage. A professional can help ensure that all registrations are completed accurately and that the fund meets the requirements for compliance and tax benefits.

If the fund is not registered correctly or on time, it may be treated as non-compliant and taxed at the highest marginal rate.

Step 7: Open a bank account in the SMSF’s name

Your SMSF must have its own dedicated bank account. This account is used to:

• Receive member contributions and rollovers
• Deposit income from investments
• Pay expenses such as insurance premiums, accounting fees, and taxes

This account must be kept separate from personal or business accounts of trustees.

Step 8: Obtain an Electronic Service Address (ESA)

An ESA is required to receive employer contributions through SuperStream. Most SMSF administrators or accounting platforms will provide one. It must be linked when registering the fund with the ATO.

Step 9: Prepare a written investment strategy

You must create a formal investment strategy that guides how the fund’s assets will be managed.

It should consider:

• Investment objectives
• Risk and return expectations
• Diversification
• Liquidity
• Insurance needs for members

This document must be kept up to date and reviewed regularly, especially if a member's circumstances change.

FAQs

Set up your SMSF with expert support

It’s possible to manage it on your own, but expert guidance can save you time, reduce risks, and help you meet all compliance requirements.

At ZedPlus, we support individuals at every stage of SMSF setup and administration. As a registered tax agent and mortgage broker, we provide a well-rounded approach that covers both tax obligations and investment strategies.

Here’s how we help:

• Set up your SMSF in line with the ATO requirements
• Manage ongoing compliance and reporting
• Lodge annual returns and prepare financial documentation
• Assist with SMSF borrowing arrangements and loan structuring
• Review fund performance and keep records up to date

Reach out to us today for expert support across every stage of your SMSF.