The ATO has highlighted the difference between trust structures for SMSFs, noting in many cases a corporate trustee is a better choice when dealing with changing members, ownership of assets, fund costs and paying administrative penalties.
In an update on its website, the SMSF regulator stated those setting up an SMSF could opt to have individual trustees or a company as the trustee of the fund, but the latter did not have state-based restrictions on membership numbers and there were fewer difficulties when changing the ownership of fund assets.
“Some state and territory laws restrict the number of trustees a trust can have to less than six. As an SMSF is a type of trust, it is important that clients seek professional advice to help understand if their SMSF is impacted by these restrictions,” it said.
“Alternatively, they could restructure or structure their SMSF to have a corporate trustee, where each member is a director of that corporate trustee.”
It noted that in opting to use the latter structure, only the company would be listed as the owner of any fund assets, removing the necessity to change ownership documents any time there was a change in the membership of the fund.
“If an individual trustee is removed or another added, you must change the titles of the SMSF’s assets. This can be costly and time-consuming. State government authorities may charge a fee for title changes. Most financial institutions also charge a fee for title changes,” it stated.
Additionally, the ATO noted corporate trustees offered better protections for individuals in the event of legal action or non-compliance, however, each director of a corporate trustee was required to hold a director identification number.
“Companies have limited liability, so a corporate trustee offers greater protection if the trustee is sued for damages,” it noted, adding that where superannuation laws were breached, administrative penalties are levied on the corporate trustee only and not the individual trustees.
In terms of costs, it said SMSFs with individual trustees did not pay annual Australian Securities and Investments Commission (ASIC) review fees so establishment and ongoing administrative costs were lower than for a corporate trustee, which also paid an initial registration fee to ASIC.
“Whichever way you go, there are costs and fees involved in setting up an SMSF,” it said.
“It may cost a bit more to set up a corporate trustee, but that might be a small price to pay compared to the cost and effort involved in changing ownership documents.
“If your SMSF breaks the super rules, each trustee can be fined thousands of dollars. If you have individual trustees, this will cost more in fines because each individual trustee is fined the penalty. If you have a corporate trustee, it only receives one penalty and the directors share the cost between them.”