SMSF trustee – individual or corporate ?

There are two different trustee structures for a self-managed super fund (SMSF).

They are:

  • Individual trustees, where each member of the fund is a trustee.
  • A corporate trustee, where each member of the fund is a director of the trustee company.

The following table outlines some of the issues relevant to each structure:

Consideration Individual Trustee Corporate Trustee
Cost Ongoing administrative requirements and establishment costs can be less for individual trustees than those associated with a corporate trustee because there are no Australian Securities & Investments Commission (ASIC) annual or upfront establishment fees.

There can be higher costs for individual trustees later, as noted below in discussingAdministration of fund assets, Penalties, andSuccession.

Appointing a company to act as trustee raises initial costs for trustees, including upfront and ongoing administration costs.

ASIC charge $457 (excluding GST) to register a company for the first time. There is also an annual fee, depending on the purpose of the fund:

  • $45, if a company acts solely as a super fund trustee
  • $243, if a company is a super fund trustee and also performs another function – eg used to run a business.
Administration of fund assets If a new trustee is appointed (such as they become a member of the fund) or an individual trustee is removed (such as they cease to be a member), changes to the title of the SMSFs assets are required to show the current trustees, and this can be a costly and time-consuming process.

Title changes as a result of changes in membership may incur a fee from the relevant state (government) authority. Most financial services also charge fees, in addition to any duties that may be payable to the state authority for the amendments to the title of the assets within the SMSF.

The recording and registering of assets can be simpler, particularly if there are changes in membership. When members commence or cease membership of the SMSF, the process involved requires that the person becomes, or ceases to be, a director of the corporate trustee and notify ASIC and ATO of this change. The corporate trustee does not change just because someone becomes a member or stops being a member.

As a result, title to the SMSF’s assets remains in the name of the corporate trustee and there are no costs associated with title changes.

Separation of assets One of the important superannuation legislation requirements is that the assets of the fund must be kept separate from any assets held personally by the trustee. With individual trustees, there might be inconsistencies with the separation of assets between SMSF assets and personal assets; there is also a risk that fund assets may be intermingled with personal assets. Contraventions in this regard can incur penalties and other financial consequences. The use of a corporate trustee, with a separate identity, reduces the risk of personal assets becoming intermingled with fund assets.

Also, as companies are subject to limited liability, a corporate trustee will provide greater protection if someone sues the trustee for damages.

Penalties Where a breach of the super law is detected, the new administrative penalties apply to each trustee of the SMSF. Each individual trustee is personally liable for the penalties, which can be up to $10,200 each, depending on the contravention.  

The penalties apply per trustee. With a corporate trustee, there is only one trustee and, therefore, one penalty.

Succession A fund with individual trustees is not likely to continue to operate as usual when changes in trustees occur, unless an appropriate succession plan has been prepared.

For many Australians, super is their largest asset and having an appropriate plan in place for control of an SMSF after death is beneficial.

A company will continue in the event of a member’s death. With a corporate trustee, control of an SMSF and its assets is more certain in the event of the death or incapacity of a member.

for more information please follow ATO link here

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SPAA Specialist Auditor

SPAA Specialist Auditor

Shiv Parihar is a SMSFA accredited SMSF Specialist Auditor™. He provides SMSF auditing services independently, conflict free and in accordance with professional audit standards.

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