There are two main reasons why you should have a special purpose corporate trustee for your self-managed superannuation fund.
Number 1: The 3 Ds – Death, Divorce and Dementia
The future is uncertain but one thing that is certain is the avoidable impact of death, divorce and dementia or loss of capacity on a SMSF.
The core concepts with a Self-Managed Superannuation Fund, is that it is, as the name suggests, self-managed. This means that the trustee of the fund; who hold the assets on trust for the members, are the members.
Accordingly when a SMSF with individual trustees, John & Jill Smith, acquires an asset, in order to keep the SMSF assets separate from personal assets, the investment is held in the legal name of:
John Smith & Jill Smith ATF (as trustee for) Smith Superannuation Fund.
Difficulty with adding and removing Members to SMSF with no Corporate Trustee
So when John and Jill want to add their son, Billy, they are required to change the legal name on all their bank accounts, all investments including property titles.
John Smith, Jill Smith & Billy Smith ATF (as trustee for) Smith Superannuation Fund.
This can amount to a lot of paperwork, potential stamp duty, and a lot of hassles. This legal name update will be required whenever a member is added or removed.
The biggest motivators for upgrading to a corporate trustee is that current legislation specifically prohibits SMSFs from having only one individual trustee.
Therefore a recently widowed spouse must organise another person / entity to act as a trustee of the SMSF and then contact the bank, investment providers, share registrars, title lawyers to have the legal name changed or deal with the ATO compliance team.
The difference with a Corporate Trustee
Alternatively a corporate trustee, where the members of the fund are directors of the corporate trustee company, the investments are held as:
Smith Super Pty Ltd ATF Smith Superannuation Fund
Any change in the members requires a normal declaration form, an online ASIC form and is done under 15 minutes. No changing bank accounts, share registries, title lawyers.
Further the ATO allows a single person is allowed to be the sole director of a fund.
Number 2: The expensive stick – ATO penalties
Everyone wants to play by the rules; however, mistakes happen and mistakes in your SMSF can be exceptionally costly.
The ATO ensures compliance with the superannuation legislation via two methods:
- The Carrot – by playing by the rules your super benefits for being taxed concessionally at a much lower rate than company or marginal tax rates
- The Stick – The ATO has the power to penalise trustees for breaches the superannuation rules and can result in ATO administrative penalties; up to $12,600 or for severe breaches the SMSF being deemed non-complying; SMSF assets being taxed at top marginal rate.
Mistakes ranging from lending to members or relatives, having incorrect borrowing arrangements or simply not keeping proper records.
The ATO administrative penalties; up to maximum penalty of $12,600, are levied on the trustees of the fund and cannot be reimbursed by the SMSF.
Penalties for breaches to SMSF Rules – Individual vs Corporate.
Therefore for a family SMSF with individual trustees; Mum, Dad & 2 kids, a serious compliance breach could result in penalties over $50K, payable by the Trustees personally.
A corporate trustee is one trustee and therefore reduces the penalty to $12,600, still not pleasant but there are better uses for almost $40K.
The benefits to using a company as a trustee are evident, but what is the catch? The catch is that it does cost more than an individual trustee arrangement – to setup and maintain annually.
Cost involved in setting up and maintaining an SMSF
Up Front Costs
For existing SMSF a special purpose company needs to be created, your existing deed may need upgrading and deed of retirement and appointment; removing the individual trustees and appointing the corporate trustee, needs to be created costing you approximately $2,000 – $2,500 + GST depending on the complexity of the original deed.
For new SMSFs – only a special purpose company added to the existing establishment costs -$1,200 + GST.
There are also some ongoing annual costs associated with running the special purpose company:
Annual ASIC fees – approx. $54 annually
ASIC Review – The Company’s statement needs to also be reviewed and confirmed each year. It is relatively simple and can easily be managed by members. Alternatively Walsh Accountants can act as the registered office and undertake all annual ASIC reviews for $250 + GST per annum.
When is a corporate trustee not needed?
As a trusted adviser, Walsh Accountants and our team in Walsh SMSF Division would always recommend a corporate trustee structure due to its added protection and administrative efficiency.
However, there are certain circumstances where we see where clients remain as individual trustees, such as small clean funds with clear future plans or if it was the member’s intention to shortly wind up the fund.
The lives and loves of SMSF members change and with individual trustees you will have the paperwork to remember them by.
A corporate trustee helps shield its members from the compliance burdens of any future unforeseen events; death & divorce and reduces exposure to ATO penalties.
This information is general in nature and should not be taken as advice. If you would like to know more about SMSF’s, the corporate trustee structure and its benefits, please contact our office to book a meeting with one of our SMSF specialists today. Contact Scott Coghlan on 5592 3644 or firstname.lastname@example.org