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The age-old debate; Corporate or Individual trustees

The decision to implement a corporate trustee or individual trustees is one every SMSF faces.
Both structures have pros and cons, making the decision-making process a case-by-case proposition.
As of 30 June 2020, ATO statistics revealed 63% of SMSFs had a corporate trustee, whilst 37% had individual trustees. 
Corporate trustees are beneficial in that a single member fund can be the sole director of the company and comply with the structure requirements set out in s.17A of SISA.
If there are 2 or more members, all members of the SMSF must be directors of the trustee company.
Directors can be changed by lodging an online form and don’t require the holding name of investments to be changed (even if directors change). The corporate trustee structure may benefit those wanting sole control over SMSF decisions or an easier transition between member departures & arrivals. 
The corporate structure contrasts with having an individual trustee structure, which requires a minimum of 2 trustees for a fund to meet the definition of an SMSF. This is the case even for single member funds!  
If a trustee were to pass away, the fund would have six months to appoint a new trustee or potentially face breaching s.17A of SIS Act. In addition, where the trustees change, the legal name of investments must also change which can often be a long and challenging process. For example, many banks do not allow the change of account names; thus, the fund must set up a new bank account to remain compliant. 
Corporate trustees have several costs involved. Firstly, there is a fee of circa $500 to incorporate the company with ASIC. 
Thereafter, there is a fee that directors must pay annually to keep the company registered on a yearly basis. If the company is established as a special purpose SMSF trustee company the annual fee is approximately $50 but will increase with inflation.  Finally, the SMSF may also be subject to ASIC penalties if certain forms are lodged late or for regulation breaches. 
For further information on company record keeping requirements, please click here. 
Comparatively, there are no upfront fees that arise from having individual trustees. However, if the trustees of the SMSF change, a deed of amendment/change of trustee deed would need to be executed to meet compliance requirements. Depending on your provider, this could run you back hundreds of dollars. 
A corporate trustee structure has the benefit of limited liability as most companies do. The liability would be limited to the assets in the SMSF. However, this protection does not extend to individual trustees, who are subject to unlimited liability. If an incident was to occur whereby the SMSF had insufficient funds to pay a liability, the trustees may be liable to pay with personally held assets. 
Furthermore, if an SMSF were to breach super legislation, the ATO could impose administrative penalties differently depending on the fund structure. For a corporate trustee, the company would be liable to pay the penalty. It is then up to the directors to determine how the fine will be paid. 
For individual trustees, each trustee would incur the same amount of penalty. For example, if the fund has two individual trustees and the ATO imposes a fine of 10 penalty units, trustee #1 will have a 10-penalty unit fine & trustee #2 will also have a 10-penalty unit fine. Therefore, the more trustees (via an individual structure) you have, the greater the overall penalty that may arise. 
What should I choose? 
After considering all the information and your own situational factors, hopefully the decision will be an easy one. An SMSF with a relatively small balance may not want to foot the ongoing costs of a corporate trustee, whilst a fund with complicated and risky investments could dislike the unlimited liability that comes with an individual trustee structure.  A simple rule of thumb to work with is ‘if you can’t afford the set-up costs of the SMSF structure, you can’t afford the SMSF’.  A corporate trustee is considered the most appropriate structure within the accounting profession. 
Should you pick a structure that over time fails to meet your needs, don’t worry – you can change structures (trust deed permitting) by preparing a Deed of Retirement and Appointment.  
For any questions you have about your SMSF trustee structure, please contact our office on (03) 5226 3599 for guidance.