A trustee of a self-managed superannuation fund (SMFS) is an individual or company that holds and invests the fund’s assets for the benefit of members.
A trustee or director of a corporate trustee is responsible for running the SMSF and making decisions that affect the retirement interests of each fund member. Trustees must comply with the superannuation and tax laws to make sure the fund is entitled to tax concessions and members’ interests are protected.
When you establish your SMSF, you take on the role of either a trustee or director of a company that is a trustee (corporate trustee). Being a trustee or director of your corporate trustee gives you the opportunity to actively manage your own superannuation and make your own investment decisions.
What follows is an overview of differences between individual and corporate trustees and how to change them.
Individual Trustees v Corporate Trustee
There are important differences between having individual trustees and appointing a corporate trustee. If you are contemplating appointment or change of a trustee of your SMSF, consider advantages of a corporate trustee over individual trustees before you proceed. Individual trustee structure may be cheaper to start with but it can later cost you much more than a corporate trustee.
Advantages of Individual Trustees
If individuals are to act as trustees of an SMSF they can be appointed without additional costs associated with a corporate trustee incorporation and maintenance. Incorporating a Pty Ltd company to act as trustee of your SMSF involves an additional initial cost of $457 ASIC fee (increased fee from 1 July 2014) to register the company. Then, on an annual basis a trustee company has to pay an ASIC annual review fee, which was slightly increased from 1 July 2014 to $243. The ASIC annual review fee will be $45 if the sole purpose of the company is to act as the trustee of a regulated superannuation fund and the company’s constitution prohibits distribution of the company’s income or property to its members. The company will also have to prepare annual return and report documents, statements, maintain the register and minutes that involves additional costs in accounting fees.
Advantages of a Corporate Trustee
2.1 Reduced administration costs in case of trustee change
Members who are also trustees of an SMSF may leave the fund. Parents may introduce their grown up children as members of their SMSF and they leave when they have enough superannuation or their own family to start their own SMSF. Members of an SMSF may leave the fund, retire, die and have to exit the SMSF as members and trustees. If you have individual trustees, title to the fund’s assets, which are held in their individual names, will need to be changed to the names of the continuing trustees. This may take considerable time, effort and cost.
When a trustee changes it is necessary to prepare a deed of appointment and retirement to retire the outgoing and appoint the incoming trustees. The trustees must also notify all relevant share registries and banks of a change in trustees to reflect the new ownership in assets on behalf of the fund which can be a time consuming process involving additional fees.
Furthermore, if your SMSF owns real estate property you will need to lodge a Transfer with other required documents and pay and in New South Wales $214 lodgement fee (increased fee from 1 July 2014) with the Land and Property Information to change registered proprietors of each property owned by your SMSF changing trustees. To pay a concessional stamp duty of $50 on the Transfer as opposite to a full ad valorem duty, you will have to prepare submissions and lodge them together with supporting documentation to satisfy the Office in New South Wales of State Revenue that the change is due to nothing else but the change in trustees of your SMSF.
In contrast, where a new member joins a fund with a corporate trustee it will require the appointment of that member as a Director of the trustee company. Where a member leaves the fund it will be necessary for them to resign as a Director. Title to the assets of the fund does not change and remains with the corporate trustee.
2.2 Reduced trustee exposure to personal liability
If individual trustees of an SMSF are subject to litigation, such as a personal liability action in relation to one of the fund’s properties, the trustees may be personally liable for the costs if they are unable to be recovered from the assets of the SMSF.
Having a corporate trustee will provide additional protection by limiting liability to the assets of the trustee company as opposite to the personal assets of individual trustees.
2.3 Reduced trustee exposure to administrative penalties
Starting from 1 July 2014, trustees of SMSFs are liable to administrative penalties under new Part 20 introduced into the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act). The administrative penalties range from 5 penalty units (currently $850) to 60 penalty units (currently $10,200). Given that ‘a trustee of an SMSF is liable’ to an administrative penalty, the total amount of the penalty imposed for a contravention of the same section of the SIS Act will increases with each individual trustee of the SMSF.
For example, if an SMSF corporate trustee with 2 directors breaches the in-house asset rules, the penalty of $10,200 is imposed on such corporate trustee. Even though the 2 directors are jointly and severally liable to pay this penalty, its total amount remains the same. However, if an SMSF has 2 individual trustees and they fail to ensure compliance with the in-house asset rules, the penalty of $10,200 is imposed on each individual trustee resulting in the total penalty of $20,400 being imposed.
Therefore, if your SMSF has a corporate trustee with 2 directors instead of 2 individual trustees, the amount of trustee liability in case of administrative penalties being imposed is twice less.
2.4 Certainty and Control
As a company has an indefinite life span, having a corporate trustee makes control of your SMSF certain in the event of death or incapacity of its members. Furthermore, the shareholding of an SMSF corporate trustee may be structured in a way that ensures that control over the corporate trustee is maintained and death benefits are distributed according to a deceased member wishes.
SMSF Trustee Appointment and Resignation
The appointment or resignation of a trustee must be carefully documented to minimise adverse risks and avoid penalties. Change of a trustee of an SMSF is not as simple as preparing basic trustee minutes. Legislative requirements need to be considered. For example, if a person is being admitted as a member of an SMSF that has individual trustees, that person must be also appointed as a trustee at the same time to comply with the member-trustee rules in section 17A of the SIS Act.
It is strongly recommended to document change of a trustee by way of a deed. There are various conditions that must be satisfied before appointing a trustee and certain documents that must be prepared and lodged, for example, obtaining relevant consents, ATO notifications and complying with the requirements in the SMSF trust deed. Under a change of trustee deed, the existing trustee(s) may be released from legal liability after their resignation. The new trustee(s) are only liable for matters issues arising after their date of appointment.
Properly prepared documentation regarding change of trustee can be critical in disputes arising upon divorce, ATO audit or death of a trustee and member. Otherwise, the validity of trustee appointment may be challenged.
Corporate Lawyers Sydney At Pavuk Legal we can assist you to restructure the trusteeship of your SMSF from individual trustees to a corporate trustee as well as provide assistance and advice on other issues of superannuation and trust law.
For the full range of Legal Services that Pavuk Legal offers please go to: www.pavuklegal.com/services/