David Busoli, principal of SMSF Alliance, says that there has long been debate over the advantages of an SMSF with an individual trustee structure versus one with a corporate trustee structure.
“Administration penalties can be as high as $19,800. These are applied per individual trustee, individually, or against each director of a corporate trustee, collectively. This would result in the individual trustees of a four-member fund being fined $19,800 each ($79,200 in total),” he said.
“If they were directors of a corporate trustee fund they would be collectively fined $19,800 ($19,800 in total). Such fines must be paid by the individuals concerned. They cannot be paid, or reimbursed, by the SMSF.”
Busoli said about 80 per cent of new funds are established with corporate trustees, and the percentage is higher when financial planners are involved but much lower when they aren’t.
Conversely, about 60 per cent of existing funds have individual trustees, which is concerningly high when considering the penalty regime.
“All SMSF members must be either individual trustees or directors of the corporate trustee. Whenever new members join, or existing members leave or become deceased, an individual trustee fund will require a change of title for each investment as well as an alteration of the trust deed to reflect the new trustee situation.”
“A corporate trustee scenario merely requires a notification to ASIC. even if there is only one director remaining.”
Busoli continued that another advantage that is often overlooked when comparing a single trustee structure to a corporate trustee structure relates to control of the fund.
“A single member fund must have two individual trustees. If a corporate trustee is in place the single member can be the only director and enjoy sole control. There is no need for a second, non-member director, though one can be included if the member wishes.”
“As most fund members comprise only a husband and wife, the necessity of considering individual trustee options can be traumatic for the survivor when a spouse dies.”
He added that there is another option in a special purpose corporate trustee, which is effective in separating ownership from personal and business assets.
“Quite apart from the regulator’s requirement that such a separation be maintained, this is also useful if the members, or their businesses, become bankrupt.”
“There have been instances where fund assets, particularly property, have been inadvertently used to secure business or personal financial arrangements resulting in not only their loss to the fund but further penalties from the regulator as well. Even if no encumbrance is in place, it can take some time to convince a receiver that property held in the individual’s name is held in trust for the fund.”
A corporate trustee is required by default if the fund intends to enter into a limited recourse borrowing from a financial institution.
