AAA

More than 90% of recently established self-managed superannuation funds (SMSFs) operate under an individual trustee structure rather than a corporate trustee arrangement, according to statistics released by the Tax Office. Although the latter is the less utilised option, does that mean it is the less wise choice? We examine the pros and cons of each trusteeship arrangement below.

Benefits of having individual trustees

If individuals act as trustees of your SMSF, then you minimise the administrative hassle and upfront costs of establishing a company to act as trustee. Other benefits are:

  • no ASIC forms to complete to establish the SMSF;
  • no ongoing ASIC reporting obligations to comply with; and
  • fewer procedural issues to deal with, as there are more flexible requirements for holding trustee meetings and no need to comply with a company constitution;
  • higher fine on companies rather than individuals;
  • Can be a child or minor member of the fund under the age of 18 as the parent or guardian can act as a trustee for the child or minor.

Benefits of having a corporate trustee

A corporate trustee can offer you the following long term benefits which individual trustees cannot provide:

  • Liability issues— companies have the benefit of limited liability. Therefore, if a corporate trustee suffers any liability, the individual directors will not suffer personal liability (other than in exceptional circumstances). On the other hand, an individual who acts as trustee exposes their personal assets if they incur any liability as trustee of an SMSF or other trust。
  • Succession and control on death of an individual— a company continues to function even after the death of one of its directors, therefore, the control of a SMSF or other trust can continue even after the death of an individual SMSF member/director.
  • Assets are kept separate— it is easier for a corporate trustee to ensure that trust assets are kept separate from the personal assets of SMSF members.
  • Administrative efficiencyfor SMSFs — if a new member is introduced to an SMSF, then, generally they must become a trustee of the fund. If the relevant SMSF has:
  • a corporate trustee, then a new director needs to be appointed to the company and notified to ASIC; or
  • an individual trustee, a deed of appointment needs to executed and, in most cases, all trust assets need to be transferred into the new trustee’s name (or jointly with other trustees). This can cause major administrative hassles if the trust assets consist of real estate and shares. The hassles do not apply to a corporate trustee as the SMSF assets are usually held in the company name, and the company remains as trustee.
  • Number of Members – Under a corporate structure, a sole member SMSF can exist. An SMSF can have an individual who is both the sole member and the sole director of the trustee company. However, a sole member SMSF cannot exist in an SMSF where there are individual trustees.
Summary table of pros and cons

 

Corporate Trustee

 

Individual Trustee

 

Asset ownership

 

R If members are appointed or cease to be members, that person has to become, or cease to be a director of the corporate trustee. There is no need for a change in the title to all assets as it remains in the name of the corporate trustee.

 

T If a member is appointed or ceases to be a member, they need to become, or cease to be a trustee. This will require the title of all assets to be transferred to the new trustee.

 

 

Number of members

 

R Sole member corporate trustee SMSFs can exist. An SMSF can have an individual who is both the sole member and the sole director – ensuring full control of the fund.

 

T Sole trustee/member SMSFs cannot exist. A sole member SMSF must have at least two individual trustees where the second person does not have to be a member but they do have to be actively involved in the trustee decisions made in relation to the fund.

 

Succession upon death

 

R A company has an indefinite life span and therefore cannot die. A corporate trustee structure can make control of an SMSF more certain in the event of a death/incapacity of a member.

 

T Immediate action must be taken once a member has died to ensure the trustee/member rules are satisfied. See Asset Ownership above.

 

 

Liability of the trustee

 

R As companies are subject to limited liability, a corporate trustee enjoys greater protection if a party sues for damages.

 

T If an individual trustee suffers any liability, their personal assets may be exposed.

 

Red tape

 

 

T A corporate trustee has to complete ASIC forms, ASIC reviews and adhere with both the constitution of the company and the requirements of the trust deed.

 

R Individual trustees have to adhere to the requirements of the trust deed but do not have to complete ASIC forms in the event of a change or complete ASIC annual reviews.

 

Set-up costs and fees

 

T Set-up costs for a corporate trustee are approximately three times that of an individual trustee.

They also have to pay ongoing fees such as an annual review fee to ASIC.

 

R Individual trustees can set up an SMSF at approximately three times less the cost than that of a corporate trustee.
Penalty unit regime

 

T Under superannuation law, courts have the ability to impose a higher fine on companies than individuals – up to 5 times more. R Under superannuation law, courts are less likely to fine individual trustees if compared to corporate trustees in the event of a breach.
Minor children members

 

T R Minor children members cannot be corporate trustees because minors cannot be directors of a company – a mandatory requirement of a corporate trustee. R Minor children members (under the age of 18) can be a member of the fund if a parent or guardian acts as a trustee on the child’s behalf.

 

 


“Super and tax”, Ato.gov.au, 2017. [Online]. Available: https://www.ato.gov.au/Individuals/Super/Super-and-tax/. [Accessed: 03- Aug- 2017].