SMSFs – Individual or Corporate Trustees?

When investing with TierONE Capital, you can choose to do so via a number of different methods. However, over 50% of our investors choose to invest via a Trust, and a number of these, are self-managed super funds (SMSFs). When setting up a SMSF, you can elect to set up using either individual or corporate trustees. Both have their pros and cons.

Damien Monahan, Superannuation Manager – Business and Private Client Advisory, at SW Accountants and Advisors has provided some considerations to think about when establishing a SMSF.

The basic rule is that all SMSF members need to be trustees/directors. A comparison of the pros and cons of the respective trustee structure is as follows:

Some of the benefits of an individual trustee structure include:

• it’s cheaper to set up than a corporate structure and may be cheaper to run – you don’t need to register a company and there are no ASIC fees;
• because it’s not a company, you don’t need to abide by additional regulations that companies are bound by under the Corporations Act.

On the other hand, an individual SMSF trustee structure also has some disadvantages, such as:

• always having to have two trustees, which can be problematic for succession planning (e.g. where there are two members and one leaves or passes away);
• it may be cumbersome to add or remove members and change the ownership of your assets;
• having trustees as legal owners of assets can easily lead to SMSF and personal assets inadvertently being mixed;
• declarations may be required for certain asset types, such as property;
• ATO administrative penalties apply to each individual trustee. This can result in penalties of up to four times that of a corporate trustee.

The benefits of a corporate SMSF trustee structure include:

• it can be easy and more cost effective to add or remove members;
• legal ownership of assets does not change when a director/member is added or removed;
• it’s the only option if you want to manage your SMSF by yourself;
• fewer problems for succession planning if where you have two members and one passes away, the remaining member can stay as the sole director of the trustee company;
• ATO administrative penalties apply to the corporate trustee, not each individual director.

Alternatively, SMSF corporate trustees also have some disadvantages, including:

• additional expenses – because you’re setting up a company, there are more establishment and running costs involved (unless you set up a special purpose company whose only purpose is to act as your corporate trustee; in this case, the running costs can be reduced, and you don’t have to lodge an additional tax return for the company, only for your SMSF);
• a SMSF corporate trustee is also bound by corporation legislation.

Damien also notes there are some other items to be aware of:

• Director Identification Numbers: Directors of all new (and soon all existing companies) are required to obtain a Director Identification Number (DIN). From 5 April 2022, prospective fund members with a Corporate Trustee are required to obtain a DIN before their appointment as a director. Further details can be found in SW’s article (HERE).
• Establishment costs: these will of course vary depending on your chosen provider. The cost of SMSF establishment documents, including a trust deed are unavoidable. If choosing to establish a corporate trustee, these will have additional fees, including ASIC fees.

Regardless of how you set up your SMSF, it’s imperative to do your homework first and prudent to engage a finance professional to help guide you through the process.

Thanks to Damien for providing the above information to TierONE Capital. Damien is an experienced financial services professional with specialisation in SMSF, advisory, business development and project management. He is a Chartered Accountant with more than 25 years’ experience in financial services.

The information in this article does not constitute, and is not intended to be, general or personal financial services advice and in any case must not be relied upon by you or any other person. The information provided is factual and covers the Legal, Regulatory and Taxation rules that SMSF’s are subject to and is not intended to nor should be interpreted to be a recommendation to establish a SMSF. All information is accurate at the time of publication but is subject to change. Accordingly, SW Australia and each and every member, officer or employee of them accept no responsibility in any way whatsoever to you or any other person in respect of, and disclaim any liability or claim that may arise as a result of, any reliance on, use of or misstatement or omission in such information unless expressly stated otherwise. Liability limited by a scheme approved under Professional Standards Legislation.