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Should your SMSF have a corporate trustee or individual trustee?

We are often asked whether it is better for a SMSF to have individual trustees or a corporate trustee. The major disadvantage of a corporate trustee is the up-front cost of establishing the company. However there may be long term benefits of having a company which will outweigh the costs.

Benefits of Having Individual Trustee’s

If individuals are to act as trustee’s of a SMSF they can simply be appointed as part of the normal super fund establishment process without additional costs being incurred. Incorporating a company to act as trustee incurs an additional up front cost to register the company. Insight Super charges a fee of $990 (including GST) to incorporate your trustee company.

On an annual basis a trustee company must also pay a fee to ASIC for the company annual review (this fee is generally $243 but can be reduced to $45 if the company acts solely in the capacity of trustee of a super fund). The company must also prepare annual return documents. Insight Super’s cost for preparing the company annual return and minutes is $99.

Benefits of a Corporate Trustee

The very nature of a family SMSF means that members and trustees may come and go from the fund. Parents may introduce adult children as members until such a time as the child has enough superannuation or their own family to commence their own SMSF. Members of an SMSF may pass away requiring them to exit the SMSF as members and trustees. An executor may also need to be appointed as a trustee for a short period of time from the death of the fund member until the death benefits exit the fund.

Changes in trustees and members can be a costly exercise as when the trustee’s change it is necessary to prepare a deed of appointment and retirement to officially retire the outgoing and appoint the incoming trustees. The trustees must also notify all relevant share registries and banks of a change in trustee to reflect the new ownership in assets on behalf of the fund which can be a time consuming process. In contrast, where a new member joins a fund with a corporate trustee it simply requires the appointment of that member as a Director of the Trustee Company. Where a member leaves the fund it is simply necessary for them to resign as director.

Reduced trustee litigation exposure

Where the trustee of a fund is subject to litigation – such as a personal liability action in relation to one of the fund’s properties, then the trustees may potentially be personally liable for the costs if they are unable to be recovered from the assets of the fund. Whilst this type of action is uncommon, having a corporate trustee will provide additional protection by limiting liability to the assets of the company not those of the underlying directors.

Single Member Funds

Single member funds with a corporate trustee allow the sole member to be the only director of the company and have full control over the running of the fund. If the fund had individual trustees it would be necessary for another individual to act as the second trustee and assist in the running of the fund.

Borrowing in Super Funds

Often if a SMSF wishes to borrow under an instalment warrant arrangement the lender will insist that the SMSF has a corporate trustee.  More information on borrowing from your super fund.

Greater flexibility to make lump sum payments

The definition of a regulated fund in section 19 of the SIS Act states that a regulated fund is:

  • A fund that has a constitutional corporation acting as trustee pursuant to a role in the trust deed of the fund: or 
  • A fund that has individual persons acting as trustees where rules of the fund require that the sole or primary purpose of the fund must be to pay old age pensions.

This small glitch in the superannuation legislation is a controversial issue. However should the tax office interpret this section based on its literal wording it may indicate that if a member would like to take their benefits as a lump sum the trustee of the fund needs to be a company. Having a company may allow greater future flexibility for the members to take a lump sum without the need to start a pension first and then commute that pension to a lump sum.

Reduced Penalties

If super laws are breached the ATO levies administrative penalties on each trustee per contravention.  If the fund has a corporate trustee and the trustee is charged a penalty, it is only charged one penalty amount.  The directors of the corporate trustee are jointly and severally liable to pay that penalty.  However where a fund has individual trustees the penalties would be imposed on each individual trustee - for an SMSF with four members and trustees this can lead to a penalty which is four times the penalty imposed on a corporate trustee for the same superannuation law contravention.

Can my existing company act as my super fund trustee?

Please read our frequently asked question about this topic by clicking here.

If you require any assistance in determining the appropriate trustee structure for your SMSF please do not hesitate to contact our office.


The information on this website is intended for general information only, contains general advice and has been prepared based on the current taxation and superannuation laws. No person should rely on the contents of this website without first obtaining advice specific to their circumstances from a qualified professional.


FROM OUR BLOG

  1. 2014 End of Financial Year Planning Considerations Clinton Ham 25-Jun-2014
  2. Last Minute End of Financial Year Tips Clinton Ham 25-Jun-2013
  3. ATO SMSF Levy Creeps Up Clinton Ham 06-Jun-2013
  4. Government Announces Proposed Super Tinkering ahead of 2013 Budget Clinton Ham 05-Apr-2013
  5. Changes to SMSF Levy Clinton Ham 05-Nov-2012

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