By Andrew Hayes, Director, Westlawn Business Services 13 November 2013
When starting a self managed super fund (SMSF), you’ll need to decide whether to establish the fund using a corporate trustee or individual trustee structure.
As a rule, all SMSFs must have between one and four members with each member of the fund being either a trustee of the fund or a director if the fund has a corporate trustee. Additionally, all fund trustees or directors of a corporate trustee must also be members of the fund.
Each structure has advantages and disadvantages, and choosing the right structure will depend on your own situation.
Advantages of a corporate trustee
For SMSFs with a corporate trustee, all assets belonging to the fund must be held in the name of the corporate trustee as trustee for the fund (e.g. ABC Pty Ltd as Trustee for the ABC Super Fund). Therefore, if there is a change in directors of the company, the ownership documents of assets will not need to be changed because only the directors have changed and not the company.
As a corporate trustee is subject to limited liability, there may be greater protection for fund members’ personal assets. For example, if the SMSF owns a property and a personal injury claim is made against the property owner, the claim would be limited to the assets of the SMSF.
For single member SMSFs, a corporate trustee structure does not require a second director, and can therefore operate with a sole director and member of the fund. Additionally, if the SMSF has two members with a corporate trustee and one director dies, the surviving member can continue with the SMSF as the sole director and member.
Disadvantages of a corporate trustee
Corporate trustee structures are more costly to establish and are subject to the Corporations Act, the SMSF’s trust deed and the superannuation law. You’ll need to register with ASIC a new proprietary limited company that acts as an SMSF trustee. The ASIC registration fee is around $444. You must also lodge a company return with ASIC and pay ASIC fees annually.
If using a company to act in multiple capacities (e.g. acting as a 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.
Advantages of an individual trustee structure
Setting up an SMSF with an Individual trustee structure is less costly than a corporate trustee structure as they are regulated under the pension powers within Australia’s Constitution and are subject only to the SMSF’s trust deed and superannuation law. There are no ASIC forms to complete, no ongoing ASIC reporting and no need to comply with a company constitution.
Disadvantages of an individual trustee structure
For SMSFs with individual trustees, all assets must be held in the names of all individual trustees of the SMSF (e.g. Allie Smith, Bob Smith and Colin Smith as Trustees for the ABC Super Fund). If there is a change in individual trustees, the ownership documents of the assets must be re-registered. Therefore, every time an SMSF member leaves the fund, the remaining individual trustees need to engage a solicitor to prepare relevant documents to formally remove the departing trustee and change ownership of all SMSF assets.
If the SMSF has two members with two individual trustees and one member dies, the surviving member will not be able to continue with the SMSF as the sole trustee and sole member. Another individual must be appointed as second trustee.
For single member SMSFs with an individual trustee structure, there must be a minimum of two trustees, where one is the sole member and trustee with another person being second trustee.
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 property owner, all assets of the individual owner are potentially at risk to meet that claim.
Advice on starting an SMSF
For advice on establishing an SMSF and the most suitable structure for your situation, contact your Westlawn Wealth Adviser.
Disclaimer Westlawn Business Services Pty Ltd provides this information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.
Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.