Business_pexels-photo-29642, Walker Wayland

Jul 2017 4 Minutes

Choose individual trustees or a corporate trustee

This article was originally published by www.ato.gov.au. To see the original article, please click here.

 

You can choose one of the following structures for your fund:

  • up to four individual trustees
  • a corporate trustee (essentially, a company acting as trustee for the fund).

You should discuss this decision with an SMSF professional. The two structures differ in terms of:

  • Member and trustee requirements
  • Cost
  • Ownership of fund assets
  • Separation of assets
  • Penalties
  • Succession

 

Member and trustee requirements

Individual trustees

  • Maximum of four members.
  • Each member of the fund must be a trustee, and each trustee must be a member of the fund (except for single-member funds – see below).
  • A member cannot be an employee of another member (unless they are relatives).
  • Single-member funds
    • There must be two trustees. One trustee must be a fund member.
    • If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.

Corporate trustee

  • Maximum of four members.
  • Each member of the fund must be a director of the company, and each director of the corporate trustee must be a member of the fund (except for single-member funds – see below).
  • A member cannot be an employee of another member (unless they are relatives).
  • Single-member funds
    • The trustee company can have one or two directors, but no more. The fund member must be either the sole director or one of the two directors.
    • If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.

 

Cost

Individual trustees

  • Ongoing administrative requirements and establishment costs are less because there are no ASIC fees.
  • A trustee cannot be paid for their duties or services as a trustee.

Corporate trustee

  • ASIC charges a fee to register a company for the first time. There is also an annual review fee, which is relatively low if the company acts solely as a super fund trustee, but higher if the company also performs another function, such as running a business.
  • The corporate trustee cannot be paid for its services as a trustee. Directors of the corporate trustee cannot be paid for their duties or services as directors in relation to the fund.

 

Ownership of fund assets

The title of fund assets must be in the name of the current trustees 'as trustees for' the fund.

Individual trustees

  • If an individual trustee is removed or another added, you must change the titles of the SMSF's assets. This can be costly and time-consuming.
  • State government authorities may charge a fee for title changes. On top of this cost, most financial institutions charge fees for amending the titles of the assets within the SMSF.

Corporate trustee

  • Recording and registering assets can be simpler, particularly for changes in membership. When a person starts or stops being a member of the SMSF, they become, or cease to be, a director of the corporate trustee.
  • ASIC and ATO must be notified of the change in director but the corporate trustee itself doesn't change, so the title to the SMSF’s assets is unchanged.

 

Separation of assets

The fund's assets must be kept separate from any assets members hold personally.

Individual trustees

  • There is a risk that fund assets may be intermingled with personal assets.

Corporate trustee

  • Having a separate corporate trustee reduces the risk of personal assets becoming intermingled with fund assets.
  • Also, as companies have limited liability, a corporate trustee offers greater protection if the trustee is sued for damages.

 

Penalties

Individual trustees

  • If super laws are breached, administrative penalties are levied on each trustee. For example, for failing to prepare financial accounts and statements, each trustee would be liable for a $1,800 penalty (10 penalty units), which would amount to $7,200 if there were four trustees. The value of a penalty unit is $180.

Corporate trustee

  • If super laws are breached, administrative penalties are levied on the corporate trustee.
    For example, for failing to prepare financial accounts and statements, a corporate trustee would be liable for a $1,800 penalty (10 penalty units).
    The value of a penalty unit is $180.

 

Succession

Individual trustee

  • 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.

Corporate trustee

  • A company continues 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.