Question 3- What trustee structure will you choose?

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You need to decide whether individuals or a company (i.e., a corporate trustee) will act as trustee of your SMSF. You can change the trustee of a fund at a later time, however costs may apply (e.g. transfer of ownership from old to the new trustee structure). You need to consider a range of issues when deciding between individual trustees and corporate trustees, as described in the table below.

Issue Individual Trustee Corporate Trustee

Cost

No initial or ongoing ASIC fees

More expensive, due to the cost of establishing a company. You also need to pay an annual review fee (lower fee applies if the company only acts as SMSF trustee).

Ongoing administration and reporting obligations

For individual trustees:

  • an SMSF annual return must be lodged with the ATO;
  • an annual supervisory levy is payable to the ATO.

In respect of a corporate trustee:

  • an SMSF annual return needs to be lodged with the ATO;
  • an annual supervisory levy is payable to the ATO
  • an annual review fee must be paid to ASIC.

Single member funds

A single member fund must have two individual trustees (i.e., the member cannot be the only trustee).

A member of a single member fund can be the sole director of the corporate trustee.

Governing rules of the fund

Individual trustees need to comply with the fund’s trust deed and the superannuation laws.

Directors of a corporate trustee need to comply with:

  • the fund’s trust deed;
  • the superannuation laws;
  • the company’s constitution; and
  • the Corporations Act 2001.

Name of fund

The fund assets should be held in the name of all individual trustees ‘as trustee for’ the fund. If a change in trustees occurs (e.g., a member dies) the ownership documents for all fund assets must be changed and the relevant registries or authorities notified (e.g., share registries).

Your SMSF assets should be held by the company as trustee for the fund. If change in directors occurs (e.g., a member dies), no change in asset ownership arises (i.e., because the trustee has not changed). In contrast to a fund with individual trustees, a change of ownership documents for fund assets is not required.

Reporting obligations

If the trustees or members of an SMSF change, the ATO must be notified within 28 days of the change.

If the directors of a corporate trustee change, the change needs to be reported to both the ATO and ASIC within 28 days. Also, if the members of a fund with a corporate trustee change, the ATO must be advised within 28 days of the change.

New member admitted or member leaves

Title changes are needed if the membership (and therefore the trustees) changes. This may be time-consuming if the fund owns a large number of assets.

The following fees may also apply:

  • state government authorities may change a fee for title changes; and
  • most financial institutions charge a fee to amend asset titles.

There is no requirement to change the ownership of the fund assets If a new director is appointed (e.g., because they become a member of the fund). This is because the trustee is still the same.

Separation of assets

Your personal assets have a higher risk of being intermingled with your SMSF assets. This is because you wear two hats –personally and also acting as trustee of your SMSF.

A company is a separate entity, reducing the risk of personal assets becoming intermingled with SMSF assets.

Succession on death

Onerous because death of an individual trustee requires you to amend the ownership details for fund assets (similar to a change in membership outlined above).

A company continues to exist upon a member’s death, meaning that control of an SMSF and its assets is more certain.

Trustee penalties

Trustee penalties for breaching the superannuation laws are levied on each trustee. For example, if an SMSF had four trustees, four penalties are incurred (one per trustee).

Only one penalty is levied on the corporate trustee for breaching the superannuation laws. The directors need to work out amongst themselves how this penalty will be paid (i.e., because it cannot be paid out of fund assets).

Limited recourse borrowing

Lender will often insist an SMSF has a corporate trustee.

Generally accepted for limited recourse borrowing arrangements.

Limited liability of directors

No limited liability.

Directors have limited liability.

 

TIP – Choose sole purpose structure (not carrying on a business)

You can choose a ‘special purpose’ company to be trustee of your SMSF. It is not recommended that you use an existing active company to be trustee (such as a company you operate a business from). If the business is sued, this could expose the superannuation assets to the creditors.