Should My SMSF Have a Corporate or Individual Trustee?

Legally, SMSFs are a special type of entity called a “trust”. In its simplest form, a trust is just a structure where one party (called the “trustee”) holds assets on behalf of someone else. When it comes to self managed super funds, there are special rules about who can be the trustee and it starts by deciding whether the trustee will be a company or a group of individuals. Each option has advantages and disadvantages that need to be considered.

Corporate Trustee

Advantages:

• Continuous Succession: SMSFs don’t stay the same forever. Members might die, new members (e.g. children) might join, the original members might divorce or one or both members might be diagnosed with dementia or have an accident that affects their mental capacity and leaves them unable to be a trustee. When a fund has a company as trustee, the change is simple (just some paperwork to lodge) and can be managed by the remaining directors

  
  

• Administrative Efficiency: When the fund’s membership changes the name the fund’s assets are held in doesn’t change because they are held in the name of the corporate trustee

  
  

• Asset Protection for personal assets: If the trustee is a company, your personal liability is generally limited to the assets held in the SMSF. Assets you own outside the fund are protected. It’s like running a business through a company, rather than in your own name

• ATO Penalties: A corporate trustee gives some protection when it comes to ATO penalties. The ATO can issue “administrative penalties” when trustees break the super rules. Penalties are required to be paid personally by the trustees (they can’t be paid from the fund). The maximum penalty amount is worked out “per trustee” so if the trustee is a company there is one penalty

  
  

• Separation of personal and super fund assets: One of the legal rules in SMSFs is that the fund’s assets are required to be kept completely separate from the members’ own assets. This is easy to do and prove to auditors and the ATO when there is a separate legal owner – a company trustee

  
  

• Single member funds: An SMSF with only one member can have a trustee that is a company with a sole director. In this situation you can have complete control over your super

Disadvantages:

• Higher Initial Costs: Because establishing a corporate trustee involves setting up a company, it is initially more expensive to have a company as trustee of your SMSF

  
  

• Ongoing Compliance: The corporate trustee has to pay an annual fee to ASIC (the government body that regulates companies)

Individual Trustees

Advantages:

• Lower Initial Costs: Setting up an SMSF with a group of individual trustees is cost-effective for those with a tighter budget as it doesn't involve establishing a company. Funds with individual trustees are not required to pay annual ASIC fees

  
  

• Simplicity: SMSF’s with an individual trustee have fewer regulatory requirements compared to corporate trustees

 

Disadvantages:

• Succession arrangements: Where the trustees are individuals and there is a change in the membership, the legal names on all of the fund’s legal documentation such as the fund’s trust deed have to change to the new group of individuals

  
  

• Administrative costs: Changes in membership will require the transfer of asset titles, which has costs involved. The legal names on all of the fund’s investments have to change to the new group of individuals. Some investments may have to close as they can’t accommodate a change in name and sometimes there are legal processes to go through which delay the change

  
  

• Asset Protection for Personal Assets. For example, if the fund owns a property, the trustees of the fund can be held liable for accidents on their property. As is the case with any other property owner

  
  

• ATO Penalties: The ATO can issue “administrative penalties” when trustees break the super rules. Penalties are required to be paid personally by the trustees (they can’t be paid from the fund). The maximum penalty amount is worked out “per trustee” so the more trustees there are, the higher the total penalty

  
  

• Single Member Funds: A single member SMSF cannot have just one individual trustee, except under specific temporary and unusual circumstances. A single member SMSF with individual trustees needs to have at least two trustees in the long term, therefore, you have shared control of your SMSF

How Can ABA Advice Beyond Accounting Help Me Choose the Best Trustee for My SMSF?

When you set up your SMSF with ABA, our specialist SMSF accountants in Birtinya can discuss your options and advise you on the management and tax implications of both options. Taking into consideration your unique circumstances, along with your financial goals and the related regulatory requirements.

Ready to set up a SMSF? Book a meeting with our expert Sunshine Coast accountants today and get your super fund started for a better tomorrow!

Already have an SMSF with individual Trustees? It’s not too late to change. ABA can set up the company for you, prepare all the legal documentation to officially change the trustee of your fund and report the change to the ATO. Contact us today to change your tomorrow.

Important note on Superannuation and SMSF Investment Advice

ABA Advice Beyond Accounting are not financial advisers and cannot offer financial or investment advice on your superannuation fund or SMSF investments. ABA always recommend you seek investment advice from a licensed Financial Adviser and can recommend a Financial Adviser if you don’t already have one.