Benefits of a Corporate Trustee for SMSF

This is a question that has come up numerous times, so we thought we would write a blog about it.

The biggest benefit of a corporate trustee has to do with succession and ease of removing/adding a member. If a member/individual trustee dies or exits the fund, the administrative repercussions would be far greater, as the ownership documents of the SMSF assets would have to be changed, and the trust deed would need updating as well. With a corporate trustee, you can easily change the directors of the company.

With a corporate trustee, you can have just 1 member in the SMSF. This means if someone exits the SMSF later down the line, the fund will still comply with legislation. Without a corporate trustee, the fund must have at least 2 members.

It is usually easier to apply for finance with a corporate trustee. Most banks will not lend to a SMSF (through a limited recourse borrowing arrangement) without a corporate trustee.

A corporate trustee is also a separate legal entity to the SMSF so there is a clear separation of assets, and greater level of protection of assets as well. Note that individuals can be personally liable for any legal issues within the trust.

Overall, Corporate Trustees do incur higher set up costs and ongoing management is a little more complicated, but there are numerous benefits that outweigh these negatives.

Here is ATO’s summary of the different SMSF structures:

Member and trustee requirements

Individual trustees

  • Two to four members.

  • Each member of the fund must be a trustee, and each trustee must be a member of the fund.

  • A member cannot be an employee of another member – unless they are relatives.

Corporate trustee

  • One to four members.

  • Each member of the fund must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund.

  • A member cannot be an employee of another member – unless they are relatives.

Cost

Individual trustees

Corporate trustee

  • ASIC charges a fee to register a corporate trustee for the first time.

  • There is an annual review fee, which is lower if the corporate trustee acts solely as a super fund trustee, but higher if the corporate trustee also performs another function, such as running a business.

  • A corporate trustee cannot be paid for its services as a trustee, and directors of the corporate trustee cannot be paid for their duties or services as directors in relation to the fund.

Ownership of fund assets

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.

  • Most financial institutions also charge a fee for title changes.

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.

  • You must notify us, and ASIC of any change in director.

  • The corporate trustee doesn't change, so the titles of the SMSF’s assets are unchanged.

Separation of assets

Individual trustees

  • Fund assets must be in the fund's name

  • Fund assets must not be combined with personal assets.

Corporate trustee

  • Fund assets must be in the fund's name.

  • Fund assets must not be combined with director's personal assets.

  • Companies have limited liability, so 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 is liable for a $2,100 penalty (10 penalty units). This would amount to $8,400 if there were four trustees.

  • The value of a penalty unit is $210.

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 $2,100 penalty (10 penalty units).

  • The value of a penalty unit is $210.

Succession

Individual trustees

  • Where changes in trustees occur, the fund is not likely to continue to operate as usual unless an appropriate succession plan has been prepared.

Corporate trustee

  • A corporate trustee continues in the event of a member's death.

  • In the event of the death or incapacity of a member, control of an SMSF and its assets by a corporate trustee is more certain.