Self-managed super funds can be created and operated by individual or corporate trustees. Increasingly, SMSF owners are using individual trustee structures to create and operate their SMSFs. The appropriate structure for a SMSF depends upon a wide variety of factors and personal circumstances. Although there is a higher initial cost of establishing a corporate trustee the high proportion of SMSFs with individual trustee structures suggests that the benefits of adopting a corporate trustee may be largely overlooked. In this article we discuss a number of the potentially overlooked benefits of choosing a corporate trustee for your SMSF.
1. Change of Members
It is much easier to add or remove members of the SMSF in the future if you use a corporate trustee which means that estate planning may be made easier by adopting this structure.
Where there is an individual trustee arrangement and the need arises to add or remove members, you may need to amend the SMSF trust deed and change ownership of assets. The cost and time involved with meeting these requirements can be costly.
Because there are strict time limits for the change of ownership documentation, this requirement can not only be costly but also onerous and inconvenient, particularly in the event of a member’s death.
A corporate trustee by comparison will have the company name listed as owner and therefore members may be added and removed without amending the SMSF deed and/or ownership documentation.
2. Reduced Liability
In the event that superannuation laws are breached the Australian Taxation Office (ATO) can impose significant monetary penalties for non-compliance.
Where a SMSF is operated with an individual trustee, each individual trustee will pay a penalty as though they were the only trustee. Therefore if a $1,000.00 penalty is imposed and there are 4 trustees, each trustee will be required to pay $1,000.00 each, totalling $4,000.00. Where a SMSF has a corporate trustee in the same circumstances and there are 2 directors of the company, there would be only 1 $1,000.00 penalty which would be evenly paid by each of the directors.
Companies also have limited liability, meaning that any claims made against the company are limited to the assets owned by the company. For example if a company owns a commercial property and there is a public liability claim made against the owner of the property, the liability is generally
3. Borrowing Money
If you need to borrow money to purchase property using your SMSF your bank may require you to adopt a corporate trustee.
4. Becoming Sole Member of Fund
Having a corporate trustee also allows you to be the sole director and sole member of the SMSF. In comparison, a single member fund requires 2 individual trustees.
Although there is a higher initial cost involved with establishing a SMSF with a corporate trustee structure, the benefits are perhaps too frequently overlooked and the initial cost may be a wise investment depending on your specific circumstances.
If you would like assistance with ensuring you create and operate your SMSF using the best structure for your circumstances, please contact us.