When setting up an SMSF, you need to decide whether individuals or a company (i.e., a corporate trustee) will act as trustee. You can change the trustee of a fund at a later time however it may be an expensive exercise to do so. You need to consider a range of issues when deciding between individual trustees and corporate trustees which we have outlined in the table below.
|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 and an annual review fee must be paid to ASIC. Each director must get a director identification number.
|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 taxation laws;the company’s constitution; andthe 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.
|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; andmost 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 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.