Question: I have an existing Pty Ltd company that no longer trades. A friend recommended that I should use a company as trustee of my Self Managed Superannuation Fund (SMSF) rather than my wife and I as trustees. We are the only 2 members of the fund. Can I use my old company to serve as trustee of my SMSF or do I need a special type of company to do this?

David, Platinum Member Ballarat

Answer:  There are 2 parts to this question. Firstly, whether you should accept your friends advice (and unless they are also your accountant, I would be hesitant to blindly follow their suggestions when it comes to financing your retirement), and secondly, whether you can use an existing company as a trustee for a SMSF.

There is much debate about whether SMSFs should have corporate trustees. Certainly, the trend in recent times is to have a corporate trustee; however, no two SMSFs are the same. Whether you should have a corporate trustee will depend on your own peculiar situation. Particularly, you should consider:

• What is the relationship between the members? Will they change often?
• What type of assets are held?
• What is the value of the SMSF assets?
• In which State are your SMSF assets located?
• How pedantic are you?
• Is asset protection a priority for you?
• Do the members agree to pay extra costs to maintain the company?
• Will the SMSF participate in Limited Recourse Borrowing Arrangements (formerly known as instalment warrants)?

Platinum Members get the lowdown on corporate v human trustees

Corporate Trustees add expense and complication. Always speak to your accountant and adviser to see if it is best for you.

Can I use my existing company?

Yes you can. But just because you can do something, does not mean you should. Using a company for multiple purposes is fraught with risk. It should only be done by people who are pedantic and never make mistakes.

Why do you need a separate company? SMSFs and their auditors are delicate. There cannot be any overlap between SMSF funds and other company funds. Old companies often have skeletons in the closet that may come back to haunt you when the company is used as a SMSF trustee. For the cost of registering a new company, it is not worth the risk of endangering your complying SMSF status and accompanying tax concessions through old misdeeds long since forgotten.

Your SMSF trustee company only needs to be a regular Pty Ltd. However, if you are setting up a new company to act as trustee, I would suggest that you set up the company as a special purpose company. A special purpose company only acts as a trustee of a SMSF. This entitles you to a reduced annual ASIC review fee for your company.

How do I update my SMSF to include a corporate trustee?

To change the trustee of your SMSF to a corporate trustee, you must do two things (in this order):

• Set up a new company. Use the Law Central Build a Company document to do this. To set up your company as a special purpose company, simply select this option during the document building process. After you have built your company, you will need to register it through ASIC.
• Update your SMSF Deed by using the SMSF - Deed Update document available at Law Central. Select that you would like to change your trustee into a corporate trustee, and insert the new company's name, ACN and registered address.

• Build a Company
• Self Managed Superannuation Fund Deed
• SMSF - Deed Update
• Investment Strategy for Self Managed Super

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