About 600,0001 Self-Managed Super Funds operate in Australia with some 61 per cent2 having a corporate trustee. Why is this significant? The growth and popularity of the vehicle has reached astronomical levels, so much so that since 2015, more than 80 per cent3 of SMSFs have been set up with corporate trustees in place. This begs the question, given the extra costs of establishing a company to act as the corporate trustee of an SMSF, why such growth and what are the advantages?
Here are my top five benefits of choosing a SMSF corporate trustees arrangement.
Under the current superannuation laws and ATO guideline, all SMSF assets should be held in names of all the trustees of the SMSF. Where an SMSF has an individual trustee structure, all members must also be trustees of the SMSF. When a member joins, leaves or dies, the name of the assets must be updated to reflect the change. This is time consuming and often, costly.
Where an SMSF has a corporate trustee structure, a change in membership means a change in directorship of the corporate company only. The corporate trustee itself does not change, meaning the assets remain in the same name within the SMSF.
Individuals acting as trustees of an SMSF are jointly and severally liable for any actions taken against the SMSF. Where the trustee of a fund is subject to litigation and the claims exceed the SMSF’s assets, the individual trustees’ personal assets may be put at risk.
The above is not the case for a corporate trustee. Liability is limited to company assets and does not extend to the directors of the company.
Having a company ensures SMSF assets are kept separate from the members’ personal assets. It therefore reduces the likelihood of errors or misuse of the SMSF’s assets (e.g. making an accidental payment/transfer into the wrong bank account).
Under an individual trustee structure, it is a requirement to have two individuals (one a member, the other related to but not an employer of the member) to act as trustees of the SMSF. Single member funds with a corporate trustee allow a sole member to be the only company director, thus having full control over the SMSF.
The ATO has authority to impose administrative penalties on “individual” SMSF trustees for contravening certain superannuation rules. For example, where an SMSF has four individual trustees (4-member fund), the penalties amount that would be payable would be four times more than if the SMSF had a corporate trustee. To review the point, individual trustees are each liable to pay any penalty amount personally whereas directors of the corporate trustee are joint and severally liable to pay any penalty.
Please contact Alanah Boylon or your Nexia Edwards Marshall Advisor if you wish to discuss the above.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.
1 - 3 ATO, Self-managed super funds: A statistical overview 2017-18 – SMSF Profile