Individual vs Corporate Trustee
When choosing to set up a Self-Managed Super Fund (SMSF) it’s important to be aware of the different options that are available to you when it comes to trustee structure. Moreover, it is important to choose a structure that will suit your circumstances and is going to be compliant with the super rules. The structure you choose can have several lasting implications for how you administer your fund and the rules you need to abide by. So it’s important to understand what options are available to you and to consider each structure carefully prior to establishing an SMSF.
There are two main types of trustee structures, these are:
- Individual Trustees and
- Corporate Trustee
With an individual structure, each member acts as the trustee, but with a corporate structure, a company acts as the trustee and the members then become directors of the corporate trustee. While an individual structure may sound more straightforward than a corporate, it may not necessarily be the most efficient option for your SMSF long-term.
How an individual trustee structure works
An individual trustee structure has:
- trustees who are individual people
- each trustee is also a member of the SMSF (other than in the case of a single member fund where 2 individual trustees must be appointed)
- there must be at least two trustees, with a maximum of 4
- no more than 4 members who must also be trustees and cannot be employees of another member of the fund, unless they are related
- All assets are registered in the name of the individual trustees in trust for the SMSF
Individual Trustee is cheaper to set up as it doesn’t incur any additional fees to administer, this can be viewed as an advantage. On the other hand, this can be problematic if one trustee decides to exit the fund, loses capacity or passes away. Adding or removing members/trustees will also require an update of the ownership of all the fund’s assets. This can become a time consuming exercise, especially if there are multiple assets that will need to be updated. Any penalties issued by the ATO will apply to each individual trustee. This can result in penalties of up to four times that of a corporate trustee.
How a corporate trustee structure works
A corporate trustee structure has:
- a legal company that acts as a trustee for the SMSF
- no more than 4 directors
- no more than 4 members who must also be directors of the company, and cannot be paid or employees of another member of the fund, unless they are related
- all assets are registered in the name of the company in trust for the SMSF
Some of the advantages of the corporate structure are:
- with a corporate trustee structure, it can be easy to add or remove directors.
- the legal ownership of the assets also doesn’t change when a member/director is added or exits the SMSF
- when a member exits or passes away, if the member remaining in the SMSF is the sole remaining member of the SMSF, they can also remain as the sole director of the trustee company
- Any penalties issued by the ATO will apply to the corporate trustee, not each individual director
With a corporate trustee, there is a one off set up cost, however, there are also additional costs involved in running it such as the annual registration fee. If there are any changes to the directors or the structure, the changes must be reported to ASIC within 28 days or penalties can apply. The corporate trustee will also be bound by Corporations Act.
With all this in mind, we recommend that you carefully consider your current and future circumstances and your overall financial goals.