Every Self Managed Super Fund (SMSF) must have a trustee (or trustees), but you need to make a choice as to whether to have a corporate or natural SMSF trustee.
One option is to have individual or “natural” trustees (i.e. the members). This comes with cheaper initial setup costs and marginally cheaper annual filing fees.
The second option is to appoint a corporate trustee (a company). Conversely this comes with a higher setup cost and marginally higher annual filing fees.
However there are some other key advantages with having a company as the trustee that far outweighs the additional costs. These include:
- Ease of adding or reducing members. With a corporate trustee this is as simple as completing a member form and lodging a form with ASIC. With individual trustees, you will need to change the title of every asset (every shareholding, property, bank account etc.) and failure to do so can result in penalties.
- Single members funds. Single member funds can have a corporate trustee with only one director, but a fund with individual trustees must have 2 trustees, even if there is only one member.
- Separation of assets. SMSF law demands that the assets of a super fund are clearly kept separate from the assets of members. This is easy to do when the assets of the fund are in the name of a trustee company. However with natural trustees this is far more difficult, and means you must show the name of the super fund on titles as well as the name of the individual trustees. Currently land titles in WA do not allow this to happen, so further costly legal documentation may be required to satisfy the rules.
- Reduced penalties. After recent changes penalties for non compliance have increased substantially. For example, a breach of the separation of assets rules (see above) for a fund with a corporate trustee will result in a total penalty of up to $1,800 per breach. Comparatively, individual trustees would receive a penalty of $1,800 per trustee (and note that the individual trustees must pay this personally, not from the assets of the fund). Penalties for other breaches (like lending to members) can be as high as $10,800 – so for a fund with 4 natural trustees, that’s $43,200 between them.
- Succession. Funds with companies as the trustee can easily continue after the death of the members, whereas it’s more difficult and costly to keep funds with individual trustees continuing after death.
Having a company act solely as trustee for your super fund (i.e. not acting as trustee for any other trusts or businesses) reduces the current annual ASIC filing fee from $246 to $46.
It may be tempting to save initial costs by using an individual trustee, but our experience says it is far better to have a corporate trustee right from the start. Changing at a later date is possible, but comes with a cost and a frustrating administrative experience.
Author: Natasha Piccoli