A Self-Managed Superannuation Fund (“SMSF”) can only ever have up to 4 members. Thus whether a SMSF is established under a corporate trustee structure or an individual trustee structure, you can still only ever have up to 4 members in the SMSF. This means that for a corporate trustee, you can have up to 4 directors and for individual trustees, you can have up to 4 individuals. All directors must be members of the SMSF and all individuals must be members of the SMSF, with the exception of a single member SMSF.
What are the advantages and disadvantages with an individual or corporate trustee?
The advantages and disadvantages of setting up an SMSF with a corporate trustee or an individual trustee’s structure are:
- A single member SMSF with a corporate trustee structure does not require a second director. It can operate with the sole member being the sole director and member of the SMSF.
- All assets belonging to the SMSF must be in the name of the corporate trustee as trustee for the SMSF (eg. XYZ Pty Ltd as Trustee for the XYZ Super Fund). If there is a change in directors of the company, the ownership documents of assets do not need to be changed. This is because only the directors have changed and not the company. However, the Australian Securities & Investment Commission (“ASIC”) needs to be advised when directors details are changed.
- If the SMSF has two members with a corporate trustee where both members are directors of the company and one director dies, the surviving member can continue with the SMSF as the sole director and member.
- The SMSF can pay superannuation benefits in the form of a lump sum or pension.
- As a corporate trustee is subject to limited liability, it may provide greater protection for its members’ personal assets. For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, the claim would be limited to the assets of the SMSF. However, the corporate structure will not necessarily provide protection from penalties under the Superannuation (Industry) Supervision Act, 1985 (Cth) (“SISA”), as the ATO is able to pursue any person involved in a breach of the superannuation legislation.
- If an SMSF wishes to borrow money under a limited recourse borrowing arrangement, most major lenders would generally insist that the SMSF has a corporate trustee, even though it is not a legislative requirement.
- Corporate trustee structures are more costly to establish and they are subject to the Corporations Act, the SMSF’s Trust Deed and the superannuation law. You may need to register a new proprietary limited company that acts as an SMSF trustee. It is also necessary to lodge a company return with ASIC and pay ASIC fees annually. The annual fee is around $44 for a special purpose company and around $236 for a trading company or multi purpose company. A special purpose company is a company which has the sole function of being the trustee of a regulated SMSF and does not perform any other function. There is also no need for financial statements to be prepared for a special purpose company – Only the SMSF needs to prepare financial statements. ASIC also provides a discount for paying company fees 10 years in advance. This fee is however non-refundable. ASIC also impose penalties if the annual ASIC fee is paid past the due date.
- If you are using the company to act in multiple capacities, for example, acting as trustee for the SMSF as well as running a business, and the business goes into receivership or liquidation, creditors may sue the company if the assets of the SMSF appear as the company’s assets. Convincing liquidators and creditors that an asset is held as part of an SMSF can be time-consuming and expensive unless the company is a special purpose company.
- Individual trustees are less costly to establish as they are regulated under the pension powers within Australia’s Constitution and are only subject to the SMSF’s Trust Deed and the superannuation law. Therefore, there are no ASIC forms to complete, no ongoing ASIC reporting and no need to comply with a company constitution.
- A single member SMSF with individual trustee structure must have a minimum of 2 trustees, where one is the sole member and the trustee with another person being the second trustee (over the age of 18).
- If the SMSF has two members with two individual trustees and then if one dies, the surviving member will not be able to continue with the SMSF as the sole trustee and the sole member. Another individual will need to be appointed as the second trustee.
- All assets must be held in the name of all individual trustees as trustees for the SMSF (eg. Frederick Smith, William Smith and James Smith as trustees of the Smith Superannuation Fund). If there is a change in individual trustees, the ownership documents of the assets need to be reregistered. Therefore, every time an SMSF member leaves the fund, the remaining individual trustees need to engage a solicitor to prepare relevant documents. The documents must formally remove the departing trustee and change ownership of all SMSF assets.
- The SMSF must pay superannuation benefits in the form of a pension. The SMSF can pay superannuation benefits as lump sums, if it specifically allows for it in its Trust Deed, ie. by commencing a pension and then commuting it to a lump sum benefit.
- Ownership of real estate may be recorded in New South Wales through registration at the titles office, being the Land and Property Information. This means individual trustees are typically registered with the Titles office, in the same way as they would be registered if they own the land personally. Therefore where an individual becomes bankrupt, creditors may attempt to gain access to the property. The individual will have to prove the property held in their name is actually held in their capacity as trustee and therefore not available to creditors.
- An individual who acts as trustee exposes their personal assets to risk if they incur any liability as trustee of an SMSF. For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, then all the assets of the individual owner are potentially at risk to meet that claim.
Regardless of whether you have a corporate or individual trustee, the role and responsibilities of each trustee (or director of a corporate trustee), should not be taken on lightly.
Contact us to find out more or to arrange a consultation with an experienced lawyer in Sydney CBD.