Have you decided a Self-Managed Super Fund (SMSF) is the right fit for your superannuation journey?
Superannuation journey? A decision will need to be made on the best way to structure your fund. When setting up a SMSF you take on the role of either, a trustee or a director of a company that is the trustee. The trustee company is called a corporate trustee. As at 30 June 2022 the ATO reported, based on registrations with the Australian Business Register data, 66% of all SMSFs had a corporate trustee. Statistics show an increasing adoption of a corporate trustee structure as opposed to individual trustee structure.
A fund with individual trustees will have following characteristics. Six or fewer members. Each member is a trustee and each trustee is a member. A fund with a corporate trustee has the following characteristics. Each member of the fund is a director of the corporate trustee. Each director of the corporate trustee is a member of the fund. A corporate trustee structure can also have six or fewer members.
What structure works best?
To determine what structure works best, cost, control, estate planning, governing rules, asset protection, penalties, and number of members should be considered.
Administrative costs on the cessation of a member can be considerably higher for funds with individual trustees. Assets held by the fund will need to be transferred into the new fund name. With a corporate trustee, the name that assets are held in will not change. However, the initial cost of establishment of the fund can be less costly for individual trustees. In comparison, a new company will be more expensive to set up. An annual review fee to ASIC will also be applicable for corporate trustees.
For a single member SMSF, having a corporate trustee will basically negate the requirement of a sole member SMSF having two individual trustees, thus giving autonomy to the single member. A corporate trustee will allow continuous succession whereby individual trustees will be required to take a action to remain a complying fund.
Individual trustees will be governed by the funds trust deed and superannuation law altogether. A fund with a corporate trustee will be governed by the funds trust deed, superannuation law, company’s constitution and the corporations act.
A corporate trustee having limited liability will provide greater protection to the members personal assets. Having individual trustees can expose the individual’s personal assets.
Should your fund become non-complying, administrative penalties can be applied by the ATO to the trustees of the fund. Directors of corporate trustees are jointly liable to the penalty. Individual trustees are each liable to the penalty.
The information provided on this website is general in nature. You should consider seeking independent financial advice from a licensed financial adviser if you are considering setting up a SMSF.
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