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PKF Australia

Accountants and Business Advisers

Corporate Trustee vs Individual Trustees

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David Henriksen

Director

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Corporate Trustee vs Individual Trustees

When considering establishing a self-managed superannuation fund (SMSF), one of the most important decisions to make on establishment is whether to have a corporate trustee or an individual trustee.

Most SMSF professionals are of the opinion that an SMSF should have a corporate trustee and for good reason. Having a corporate trustee of your SMSF generally requires that each member must be a director of the company and the company may not have any other directors (one exception to this rule is that a single member SMSF is allowed to have one non-member director).

The decision to appoint a corporate trustee at the establishment of your SMSF is important because if you do decide to appoint a new trustee after establishment it can be a complicated and costly exercise to change trustees. Your establishment costs are more expensive to appoint a corporate trustee rather than individual trustees. In fact, the cheaper establishment fees and ongoing savings of annual ASIC fees would be the only real advantage of having individual trustees. Although the cheaper fees may be attractive at first look, these extra costs may be totally irrelevant compared to what it could cost to change the trustee down the road.

Advantages of setting up a corporate trustee include:

Borrowing – With limited recourse borrowing arrangements (LRBA) to buy property becoming more common in SMSF’s, banks that are granting these arrangements will almost certainly want the fund to have a sole purpose corporate trustee.

Separation of Assets – Companies have greater protection due to their limited liability and can protect the members if the SMSF ever becomes insolvent.  Generally the directors of a company are not personally liable for the debts of the company unless they are found to have breached certain director’s duties which could result in legal action against the directors. However, individual trustees of an SMSF are jointly and severally liable for the SMSF’s liabilities.

Administration – The addition and removal of members is a lot easier with a corporate trustee. If you had individual trustees you would have to change the legal ownership of your investments every time a new trustee was added or removed. This can be a costly exercise if you have to pay stamp duty and other associated costs when changing a legal title of assets. It is also easier to show that the fund remains an Australian resident fund if members move overseas for a period of time.

Succession – The normal operation of an SMSF is not likely to continue when changes in trustees occur when individual trustees are set, unless there is a good plan in place. However, a company continues to operate when a member passes away. In the sad event of the passing or impairment of a member, a corporate trustee will continue to control the SMSF’s assets with more certainty. When an individual trustee passes away certain actions need to be taken straight away and within six months to enable the SMSF to keep its tax concessions.  The corporate trustee structure is also better for handling divorce or separation of members.

Penalties – With the new trustee penalty powers given to the ATO effective 1st July 2014 the trustees of SMSF’s can be fined for not executing their responsibilities as trustees. The ATO can only issue the one penalty per offence per trustee. Due to this an SMSF with a corporate trustee can only be issued the one penalty per office as opposed to individual trustees which could end up with at least double and up to four times the penalties per offence.

If you wish to discuss having an SMSF or you aren’t happy with the current service you receive please contact PKF Sydney & Newcastle on (02) 4962 2688 or email [email protected].

 


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