An SMSF can only ever have up to four members.  Therefore regardless of whether you establish an SMSF under a corporate trustee structure or an individual trustees’ structure you can still only ever have up to four members in the SMSF. What this means for a corporate trustee, is that you can have up to four directors and for individual trustees you can have up to four individuals. All directors must be members of the SMSF and all individuals must be members of the SMSF with the exception of a single member SMSF.

So, what are the advantages and disadvantages of setting up an SMSF with a corporate trustee or an individual trustees' structure?

Corporate Trustee – Advantages

• A single member SMSF with a corporate trustee structure does not require a second director. It can operate with the sole member being the sole director and member of the SMSF. 

• All assets belonging to the SMSF must be in the name of the corporate trustee as trustee for the SMSF (e.g. ABC Pty Ltd as Trustee for the ABC Super Fund).  If there is a change in directors of the company, the ownership documents of assets do not need to be changed. This is because only the directors have changed and not the company.   However, the Australian Securities and Investment Commission (ASIC) needs to be advised when directors’ details are changed.

• If the SMSF has two members with a corporate trustee where both members are directors of the company and one director dies the surviving member can continue with the SMSF as the sole director and member.

• The SMSF can pay superannuation benefits in the form of a lump sum or pension.

• As a corporate trustee is subject to limited liability, it may provide greater protection for its members’ personal assets.  For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, the claim would be limited to the assets of the SMSF.  However, the corporate structure will not necessarily provide protection from penalties under the SISA as the ATO is able to pursue any person involved in a breach of the superannuation legislation.

• If an SMSF wishes to borrow money under a limited recourse borrowing arrangement, most major lenders will generally insist that the SMSF has a corporate trustee, even though it is not a legislative requirement.

Corporate Trustee – Disadvantages

• Corporate trustee structures are more costly to establish and they are subject to the Corporations Act, the SMSF’s trust deed and the superannuation law.   You will need to register a new proprietary limited company that acts as an SMSF trustee with ASIC which is the statutory authority that regulates companies.  The ASIC fee to register is around $444. You must also lodge a company return with ASIC and pay ASIC fees annually. The annual fee is around $44 for a Special purpose company and around $236 for a Trading company or multi-purpose company.  A special purpose company is a company which has the sole function of being the trustee of a regulated SMSF and it does not perform any other function. A trading company or multi-purpose company, on the other hand, performs other functions such as running a business or acting as trustee of a discretionary family trust.   There is also no need for financial statements to be prepared for a special purpose company – only the SMSF needs to prepare financial statements. ASIC also provides a discount for paying company fees ten years in advance.  The fee is, however, non-refundable.  ASIC also imposes penalties if the annual ASIC fee is paid past the due date.

• If you are using a company to act in multiple capacities (e.g. acting as a trustee for the SMSF as well as running a business) and the business goes into receivership or liquidation, creditors may sue the company if the assets of the SMSF appear as the company’s assets.  Convincing liquidators and creditors that an asset is held as part of an SMSF can be time-consuming and expensive unless the company is a special purpose company.

Individual Trustees – Advantages

• Individual trustees are less costly to establish as they are regulated under the pension powers within Australia’s Constitution and are subject only to the SMSFs’ trust deed and the superannuation law.  Therefore, there are no ASIC forms to complete, no ongoing ASIC reporting and no need to comply with a company constitution. 

Individual Trustees – Disadvantages

• A single member SMSF with individual trustee structure must have a minimum of two trustees, where one is the sole member and trustee with another person being the second trustee (over the age of 18).

• If the SMSF has two members with two individual trustees and then if one dies, the surviving member will not be able to continue with the SMSF as the sole trustee and sole member.  Another individual would need to be appointed as the second trustee.

• All assets must be held in the names of all individual trustees as trustees for the SMSF (e.g. Allie Smith, Bob Smith and Colin Smith as Trustees for the ABC Super Fund). If there is a change in individual trustees, the ownership documents of the assets need to be re-registered.  Therefore, every time an SMSF member leaves the fund, the remaining individual trustees need to engage a solicitor to prepare relevant documents.  The documents must formally remove the departing trustee and change the ownership of all SMSF assets.

• In most states there is also some legal uncertainty if any change in trustee needs to be registered with the Stamp Duty’s office.

• The SMSF must pay superannuation benefits in the form of a pension. The SMSF can pay superannuation benefits as lump sums, if it specifically allows for it in its trust deed (i.e. by commencing a pension and then commuting it to a lump sum benefit).

• In most Australian states and territories, only legal ownership of real estate can be recorded with the titles office.  This means, individual trustees are typically registered with the titles office in the same way they would be registered if they owned the land personally.  Therefore, where an individual becomes a bankrupt, creditors may attempt to gain access to the property.  The individual will have to prove the property held in their name is actually held in their capacity as a trustee and therefore it is off limits to creditors.  Proving this can be a difficult and time-consuming process.

• An individual who acts as trustee exposes their personal assets to risk if they incur any liability as trustee of an SMSF.  For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, then all assets of the individual owner are potentially at risk to meet that claim.

Regardless of whether you have corporate or individual Trustees, the role and responsibilities of each Trustee (or Director of a corporate Trustee) should not be taken on lightly. Gold and Platinum Members read on for how Trustees can be held accountable for “Rubber Stamping” decisions of the SMSF.

This article was prepared by Monica Rule. Monica is the author of The Self Managed Super Handbook which is available from Law Central here.

Monica will also be presenting a Webinar on the topic of SMSF Investment Restrictions for Law Central on 2 October. To register, please click here.

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• Self Managed Superannuation Fund Deed
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• Pension Pack for Self Managed Super