Setting up a self-managed super fund (SMSF) requires members to choose between using an individual or a corporate trustee.
Each trustee structure has varying requirements and implications for the members of the fund, so it is important to understand the differences. Members can choose up to four individual trustees or a corporate trustee, where a company acts as trustee for the fund.
For single-member funds with an individual trustee, there must be two trustees, and 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.
Single-member funds with a corporate trustee structure can have one or two directors. The fund member must be either 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.
One of the most significant differences between the structures is the ongoing administrative requirements and establishment costs. If a corporate trustee is selected, ASIC charges a fee to establish a company as well as an annual review fee. Whereas, individual trustee arrangements incur lower establishment and ongoing costs as there is no need to establish a company.
Although using a corporate trustee can be more costly, there are benefits in selecting a corporate trustee especially in regards to the ownership and separation of fund assets. For example, changes in membership can be simpler. When a person starts or stops being a member of the fund, they become or cease to be, a director of the corporate trustee. Therefore, the corporate trustee itself does not change and the title to the SMSF’s assets is unchanged. Where an individual trustee is removed or added, the titles of the SMSF’s assets must consequently change. The fees associated with these changes can be costly as state government authorities and most financial institutions charge fees for amending the titles of the fund’s assets.
In addition, a corporate trustee structure is a good form of asset protection, especially for professionals who work in industries where there is a high risk of being sued for damages (i.e. medical professionals). As companies have limited liability, this reduces the risk of personal assets blending with fund assets.
A corporate trustee structure is also suitable for those members who wish to borrow to purchase property through their SMSF. Most banks will require a corporate trustee structure for borrowing arrangements. Another consideration when choosing a trustee structure is estate planning. An SMSF 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. With a corporate trustee, a company continues in the event of a member’s death.
Members need to carefully consider the type of trustee structure most suited to their individual needs and seek professional advice if they are unsure.
Start to take control of your SMSF and call Lee and Lee today. We are here to help. We are SMSF Specialist Accountant and members of the SMSF Association.
Susan Flux, Brisbane
Since that time I known Tony and his team at Lee and Lee, they have provided me with outstanding advice and services regarding my personal, family and especially my SMSF borrowing setup for wealth creation and tax reduction strategies that have since led to financial independence.
I now very clear and feel confident on my future financial goals and taxation strategies and know they can be achieved with Tony’s expert and professional help.
Shukri Barbara, Property Tax Specialists Sydney
Tony’s understanding of the business and tax environments, together with his experience and can do attitude enables him to deliver creative solutions outside the square as much as inside, A positive thinker I find Tony inspiring, guiding clients and associates to a prosperity mindset.
Tony has impressed me with his technical knowledge and execution. He works with honesty and integrity and is generous in his dealings.
John Mu, Internet Marketing Strategist Gold Coast
Tony Lee and his team at Lee & Lee is without a doubt Australia’s number one accounting firm.
Tony has the strategies which are helping me legally minimise tax. He has helped me in my personal development and wealth creation to build a multimillion dollar property portfolio.