Like most professional advisers, we are strongly of the view
self-managed superannuation fund ("SMSF") should have
a corporate trustee. This article looks at the trustee requirements
for SMSFs and sets out a number of reasons for preferring a
An SMSF may either have a sole corporate trustee or individual
trustees. If the SMSF has a corporate trustee, then each member
must be a director of the company and the company may not have any
other directors. Similarly, with individual trustees the members
must generally be the only trustees.
The decision as to whether an SMSF has a corporate trustee or
individual trustees needs to be made at the time that the fund is
set up. While it is possible to change the trustee structure later,
it is not a simple or a cost-free exercise to do so.
The only real advantage of individual trustees is that the fund
is cheaper to establish and operate as you do not need to
incorporate and maintain a trustee company. These initial cost
savings mean that roughly 70% of SMSFs are established with
individual trustees. However, they can ultimately prove to be a
Set out below are seven good reasons for having a corporate
Unlike people, companies do not die and the death of a member in
a fund with a corporate trustee causes no immediate problems.
However, when an individual trustee dies, action needs to be taken
to ensure that the SMSF does not lose its tax concessional status.
There have been a number of Court cases in recent years involving
disputes arising from the death of a member which would have been
less likely to arise if a corporate trustee was used.
Having a corporate trustee also provides a better structure for
handling member incapacity and divorce situations.
Ease of administration
The admission of new members to the fund (such as children) and
the acquisition and disposal of assets, are much simpler with a
corporate trustee. The legal ownership of the fund's assets do
not need to be changed every time a member joins or leaves the
fund. It is also easier to show that the fund remains an Australian
resident fund if members move overseas for a period of time.
For an SMSF that is wanting to use a limited recourse borrowing
arrangement, it is almost certain that the lending bank will
require the fund to have a corporate trustee.
Sole member status
If an SMSF with individual trustees reduces to only one member
(e.g. the marriage of the members ends or a member dies), then the
remaining member will not be able to continue the trusteeship of
the SMSF by themselves and will need to find an additional trustee
for the fund. With a corporate trustee, a remaining member can
continue on as sole director of the company.
Companies have limited liability and provide greater protection
in cases of the SMSF becoming insolvent. Directors of a company are
generally not personally liable for the debts of the company.
However, each individual trustee of an SMSF is joint and severally
liable for the liabilities of the fund – but have a right of
indemnity out of fund assets.
Under the new penalty regime for SMSFs, only one penalty is
applied to a fund with a corporate trustee. However, each
individual trustee is penalised personally – meaning at least
double the penalty as there cannot be less than two individual
Funds with corporate trustees can pay benefits in either lump
sum or pension form. However, a fund with individual trustees must
have a primary purpose of paying pensions which makes it more
difficult to convert a pension to a lump sum at a later time.
One final point. Although any form of company may act as trustee
of an SMSF, we strongly suggest that a sole purpose company is
used. This attracts a lower annual ASIC fee and has the advantage
of keeping the affairs of the SMSF separate from other business and
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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