The ATO is already beginning to encourage members of SMSFs to use a corporate trustee structure, Brian Hor, Townsends Business & Corporate Lawyers’ special counsel for superannuation and estate planning, told SMSF Adviser.
Mr Hor pointed to the administrative penalties of up to $10,200, which can be applied to each individual trustee of a fund, as opposed to a single penalty for a corporate trustee.
“Even the definition of a regulated fund in section 19 of the SIS Act favours having a corporate trustee in that a fund which has individual persons acting as trustees will only satisfy the definition if the rules of the fund require that the sole or primary purpose of the fund must be to pay old age pensions,” Mr Hor said.
“Whereas having a corporate trustee prima facie provides greater flexibility by allowing members to take a lump sum without having to start a pension first and then commute the pension to a lump sum. Whilst there was a constitutional reason for the difference, it still favours having a corporate trustee.”
From the ATO’s perspective as regulator, having corporate trustees means there is another body of well-developed rules, namely the Corporations Law and the common law, to help ensure prudent management of investment funds, Mr Hor said.
Mr Hor also noted the ASIC fees for establishing and maintaining a corporate trustee would be welcomed by the government.
“Has the ATO used incentives to affect taxpayer behaviour in the past? I would suggest that the continued acceptance of so-called ‘negative gearing’ is a good example. It has remained permissible since 1985 to encourage the provision of affordable residential rental accommodation, and for this reason is likely to continue notwithstanding all the hype about the current property market boom,” he said.
Also speaking to SMSF Adviser, a partner in law firm Holley Nethercote, David Court, said while it may be legally possible for the ATO to actively push the corporate trustee option, it may not be politically viable.
“Even if the ATO was gung-ho in favour of it and ASIC was as well, I think it’s ultimately a political decision and… there’s a pretty powerful political lobby of SMSF investors,” Mr Court said.
He added that it is clear the ATO prefers the corporate trustee option, and that there is “no compelling reason” why being an individual trustee is better than being corporate.
“There’s no legal advantage in being individual; it’s just it actually makes things harder.”
great
John,
Company only trustees please, listen to Stefano, he is 100% correct.
Even if you wish to start with cost and ignore value, if you look at the costs associated with death, dementia etc, it will represent value to pay for the company and the annual fee due to the longer term savings.
John..Wow!!! Obviously haven’t seen the trouble the individual trustees arrangement can cause. For $650 a special purpose company and the reduced ongoing cost are a minute price to pay. If after being properly explained someone couldn’t come at the cost they should get shown the door. Bit shocked by such a statement from someone who has anything to do with SMSFs. But many Accountants have marketed their services around SMSFs as being a cheap option. A failure to articulate the issues is made more difficult when you don’t know what they are.
$650 set up costto setup a special purpose trustee company plus $45 pa is hardly expensive. Indeed, I would argue if the clients thinks otherwise, then maybe they should not have a SMSF.
John, unfortunately your view as stated is very,very shortsighted and frankly when someone starts adding the word ‘cost’ to the discourse then you show your cards…
I have dealt with the ramifications of death and divorce, and shortly, dementia, with both methods of trusteeship so I won’t justify my very strong opinion that there is absolutely no way that a SMSF should be established without a sole purpose company.
I have also had the classic case where a trading company was installed fund trustee – and the client and their tax professional were completely blind as to the peril they potentially faced.
If I had the power, I would change the act to only allow a sole purpose corporate trustee for a SMSF.
Finally, please,please….never ever confuse the cost of something with value because this is what unfortunately many professionals do, and whats worse the clients then get confused as well because they end up knowing the cost of everything and the value of nothing.
What is missing from this discussion is WHY do the ATO & ASIC want to push the corporate trustee line?
From my experience (accounting firm) the only time it is beneficial to have a corporate trustee is to avoid the risk of investments being recorded in the wrong name. In every case I have seen, it has been the fault of the banker or stock broker and not the trustee.
Thus if individual trustees are careful, having a corporate trustee is just an unnecessary cost and complexity for normal mum & dad SMSF trustees.