SMSF ‘special purpose company’
A corporate trustee of an SMSF can be an ordinary company or a “special purpose company”. Broadly, a corporate trustee of an SMSF meets the definition of a “special purpose company” if it meets the following criteria:
- The constitution of the company prohibits distribution of the company’s income or property to its shareholders; and
- The sole purpose of the company is to act as the trustee of a regulated superannuation fund within the meaning of section 19 of the Superannuation Industry (Supervision) Act 1993 (Cth).
An SMSF company that has the requisite wording in its constitution and that has notified the Australian Securities and Investments Commission (ASIC) that it is a “special purpose company” qualifies for a reduced annual review fee (see table below). The notification to ASIC can be at the time of registration or at a later date.
Most constitutions have been drafted to only allow the company to be either an ordinary or “special purpose” company. Thus, where an existing company wishes to become a “special purpose company”, its constitution needs to be varied by a special resolution of its shareholders or as otherwise provided in the existing constitution (or what were previously known as memorandums and articles of association).
However, companies (or constitution updates) prepared by DBA Lawyers have flexible provisions to allow a company to change to an SMSF trustee or become an ordinary company without requiring any variation (e.g. where an existing company that acts as a trustee of an SMSF commences to also act as a trustee for a family trust). That is, under the DBA constitution, no further paperwork is needed to “turn off” or “turn on” the “special purpose (SMSF) company” provisions. Thus, a DBA Lawyers constitution can result in substantial savings throughout the life of a company.
In addition, there are further savings to be had if you make a 10-year prepayment of ASIC fees on annual review date after the company is established.
ASIC payment options of annual review fees
Current ASIC annual review fees for private companies as at 1 July 2020:
|
Type of company |
Annual review fee |
Advance payment for 10 years |
Comparison |
|
A proprietary company, except a special purpose company |
$273 |
$2,020 |
Over a 10-year period, this represents a saving of $710 based on the current annual fee of $273 (i.e. $2,730 – $2,020) |
|
A special purpose company |
$55 |
$383 |
Over a 10-year period, this represents a saving of $167 based on current annual fee of $55 (i.e. $550 – $383) |
Benefits of the advance payment option
Cost savings
As noted in the above table, over a 10-year period, an SMSF corporate trustee saves $167 based on the annual fee of $55 for FY2021.
Similarly, a 10-year prepayment for an ordinary company saves $710 based on the current annual fee of $273 for FY2021.
The amount saved is greater as ASIC fees are indexed each 1 July and a prepayment “locks in” the annual review fee at that time (ignoring time value of money).
Reduced risk of late payment fees
A late payment fee will be charged where payment is made later than two months after the annual review date. By choosing to pay its annual review fees in advance, the corporate trustee alleviates the administration of making 10 payments over a 10-year period and reduces the risk of having to incur late payment fees.
Significant time savings
The time savings of having to arrange for annual payments after receiving and checking each annual review statement can be significant. If you have prepaid for a 10-year period, you can briefly scan the annual review statement and file it away. Naturally, any change in details needs to be notified to ASIC.
Other considerations
No refund of advance payment
Generally, no refund of the advance payment is available once the payment is made. For example, if a corporate trustee ceases to be a registered company during the 10-year period, it is not entitled to a refund for any remaining prepaid amount.
Payment to ASIC
Payment must be made using BPAY or Post Billpay and accompanied by a specific ASIC remittance advice form. The remittance advice form can be accessed at https://asic.gov.au/for-business/running-a-company/annual-statements/advance-payment-of-annual-review-fees/.
Other issues
Naturally, there are a range of other issues that need to be considered, including the timing of any tax deductions for a prepayment, and DBA Lawyers is well placed to provide assistance as needed.
Conclusion
The advance payment of ASIC annual review fees should be considered for those wanting to save time and money. Further information on this payment option can be found on the above URL on the ASIC website.
Daniel Butler, director, DBA Lawyers
A good article, Daniel, however, the biggest challenge I encounter as auditor is not that SMSF corporate companies are Special Purpose Companies (SPC), but the number of occurrences when the corporate trustee of a LRBA bare trust is registered as a SPC.