As part of the rules , a superannuation fund is required to have a trustee. A trustee is a person or company that holds and invests a fund’s assets for the benefit of the member’s retirement. A trustee is required to;
-Act in the best interests of all fund members when you make decisions
-Manage the fund separately from your own affairs
-Ensure the money in the fund is only accessed where the law allows it
-Know, understand and meet your responsibilities and obligations
-Ensure your SMSF is independently audited every year
-Lodge your SMSF annual return every financial year
-Pay the supervisory levy.
As per the superannuation rules, there can be 2 forms of trustees in a SMSF. They are individual trustees and corporate trustees. Each has their own advantages and disadvantages and these have been outlined as follows:
Individual trustees, where each member of the fund is a trustee;
- Cost: Ongoing administrative requirements and establishment costs can be less for individual trustees than those associated with a corporate trustee because there are no Australian Securities and Investments Commission (ASIC) annual or upfront fees.
- Administration of fund assets: If a new trustee is appointed (such as they become a member of the fund) or an individual trustee is removed (such as they cease to be a member), changes to the title of the SMSF’s assets are required to show the current trustees, and this can be costly and time-consuming. Title changes as a result of changes in membership may incur a fee from the relevant state (government) authority. Most financial services also charge fees, in addition to any duties that may be payable to the state authority for the amendments to the title of the assets within the SMSF.
- Separation of Assets: One of the important superannuation legislation requirements is that the assets of the fund must be kept separate from any assets held personally by the trustee. With individual trustees, there might be inconsistencies with the separation of assets between SMSF assets and personal assets; there is also a risk that fund assets may be intermingled with personal assets. Contraventions in this regard can incur penalties and other financial consequences.
- Penalties: Where a breach of super law is detected, the new administrative penalties apply to each trustee of the SMSF. Each individual trustee is personally liable for the penalties, which can be up to $10 200 each, depending on the contravention.
- Succession: A fund with individual trustees is not likely to continue to operate as usual when changes in trustees occur, unless an appropriate succession plan has been prepared. For many Australians, super is the largest asset and having an appropriate plan in place for control of an SMSF after death is beneficial.
Corporate trustee, is where each member of the fund is a director of the trustee company;
- Cost: Appointing a company to act as trustee raises initial costs for trustees, including upfront and ongoing administration costs. ASIC charges $457 (excluding GST) to register a company for the first time. There is also an annual fee, depending on the purpose of the fund: $45, if a company acts solely as a super fund trustee $243, if a company is a super fund trustee and also performs another function – e.g. used to run a business.
- Administration of fund assets: The recording and registering of assets can be simpler, particularly if there are changes in membership. When members commence or cease membership of the SMSF, the process involved requires that the person becomes, or ceases to be, a director of the corporate trustee and notify ASIC and ATO of this change. The corporate trustee does not change just because someone becomes a member or stops being a member. As a result, title to the SMSF’s assets remains in the name of the corporate trustee and there are no costs associated with title changes.
- Separation of assets: The use of a corporate trustee, with a separate identity, reduces the risk of personal assets becoming intermingled with fund assets. Also, as companies are subject to limited liability, a corporate trustee will provide greater protection if someone sues the trustee for damages.
- Penalties: The penalties apply per trustee. With a corporate trustee, there is only one trustee and, therefore, one penalty.
- Succession: A company will continue in the event of a member’s death. With a corporate trustee, control of an SMSF and its assets is more certian in the event of the death or incapacity of a member.
As each taxpayers situation is unique, there is no one option better than the other. In this case, it is best to get professional advice in this area. At Fortis Accounting Partners Services our team has extensive years of experience working with SMSF’s, therefore please feel free to contact us if you have any queries.
