The ‘asset specificity’ of special purpose companies set up to be SMSF corporate trustees is a key benefit existing companies are unable to provide, a sector legal expert has said.
Townsends Business and Corporate Lawyers principal Peter Townsend said the perceived expense-related benefit of appointing an existing company as an SMSF corporate trustee would not outweigh the disadvantage of having a corporate trustee that was not purpose-built for the fund.
“If we consider the corporate trustee of an SMSF to be an asset – and we absolutely should – then what they’re really promoting is a high degree of ‘asset specificity’,” Townsend said in a blogpost.
“Repurposing an existing company, to save a modest sum of money and a bit of paperwork, isn’t worth the security compromise. Corporate trustees benefit when they are highly specific, because they are purpose-built. Their value as an asset is incomparable.”
Appointing a corporate trustee that was not purpose-built for the fund and therefore not ‘asset specific’, would prove less capable of performing its duty to the necessary standard, he added.
“Non-specialised companies lack exclusivity in their motivations, may fail to meet the specific criteria required of directors of corporate trustees, and may make the SMSF vulnerable to the company’s creditors if the ownership/trusteeship of certain assets is ambiguous.”
Using a “special purpose company” rather than an existing company would allow for total compliance in addition to providing greater protection of the SMSF’s assets, he noted.
“It’s much better to create a new company whose sole purpose for existing is to be the corporate trustee of the SMSF,” he added.
In September, Heffron senior SMSF specialist Alex Denham said SMSF trustees should not use pre-existing companies as a corporate trustee of their fund and doing so may even breach superannuation law.
