SMSF trustees should not use pre-existing companies as a corporate trustee of their fund as they are unlikely to be suitable for the task and may even breach superannuation law, according to an SMSF educator.
Heffron senior SMSF specialist Alex Denham said while it seemed logical to use a pre-existing company to be a corporate trustee of a new SMSF to avoid extra costs, the company would not be able to act exclusively for the fund.
“While it’s possible for a company to act in multiple capacities, we generally take the approach that an SMSF trustee company should be a ‘special purpose company’ acting exclusively as the trustee of an SMSF,” Denham said in a blog post.
Denham also recommended that any company set up as a corporate trustee for one SMSF should not be used for another fund held by the same individual or family group. Instead different special purpose companies should be established for each SMSF to allow them to act exclusively as trustee of the relevant fund.
The reason for the creation and separation of the special purpose companies was due to the specific rules as to who can be a director of an SMSF trustee company which may not be satisfied by another type of company, Denham noted.
She pointed out that if the pre-existing company was running a business and appointed a new director who was not a member of the fund the appointment would breach superannuation laws.
At the same time, the SMSF may have problems identifying the assets of the fund separately from those of the business being run under the same company structure. This would breach the requirement to hold assets separately from the members’ personal or business assets.
“The assets of the SMSF could be at risk if the company is sued in its non-SMSF capacity and vice versa if the company is sued in its trustee capacity,” Denham said, adding, “If the company experiences financial difficulties due to its other activities, the trustee in bankruptcy may seek to make a claim over the SMSF’s assets.”
Denham also addressed the cost issue associated with the creation of new special purpose companies to act as an SMSF trustee noting that the Australian Securities and Investments Commission has reduced the fees that apply to them.
