Starting a Self-Managed Super Fund (SMSF) means you decide where your superannuation is invested by the trustee. When choosing your trustee structure, a corporate trustee can be highly beneficial.
Superannuation is an entitlement which every Australian has a right to. However, if you run a business, you may not like the idea of not being able to decide where your payments go. Many business owners find a solution in creating a Self-Managed Super Fund (SMSF) under a corporate trustee structure. In this article, we’ll discuss SMSFs and why managing it under a corporate trustee structure can be beneficial for your business.
Self-Managed Super Funds
An SMSF is a private superannuation fund regulated by the Australian Taxation Office (ATO). It operates as it’s own tax structure under the ATO. Similar to superannuation generally, SMSFs exist so that you will have money to live on when you retire. However, SMSFs are different to industry super funds. This is because you can choose where your super payments go.
You can manage this superannuation fund by yourself, and/or appoint up to four members that are trustees (or directors) who are responsible for making decisions about the fund. These members can be a group of individuals or a company. To establish your SMSF, you need to appoint trustees to oversee your fund. The trustees you choose can be individuals or it can be a company.
Why does my structure matter?
The way your fund is managed and run will vary based on which structure you choose. Your structure will also determine the liability your trustees will have and will entail different costs to start and maintain. If you’re unsure of which structure you should choose, a business lawyer can advise you.
Corporate trustee structures
A corporate trustee means that rather than a person being a trustee, a company is a trustee. Being a member of the trust means that you’re a director (and there need to be at least 4). Being a member means that you also have to be a director of the company which administers the fund.
Generally, your employees cannot also be members, except for if you’re related. Assets of the fund must be registered in the name of the company that is the trustee. You may opt for this type of structure if:
- Want to be the sole director and sole member of the fund
- If you are seeking reduced liability
- If you want to change members within your fund
Advantages of a corporate trustee structure
There are many benefits to using a corporate trustee structure:
- Your assets have greater protection whereas the personal assets of individual trustees are at risk.
- Recording and registering ownership of assets is simpler, particularly if you want to change membership in future. Once a person starts or stops being a member of the SMSF, they cease to be a director of the corporate trustee. The title to the assets and the name on the ownership documents remains unchanged. If choose to operate as an individual trustee, changes will need to be notified immediately.
- Unlike an individual trustee, a corporate trustee reduces the risk of personal assets being mixed with fund assets. The trust’s assets and personal assets are held under different names.
- The company is a separate legal entity, this means it has limited liability protection if the trustee is sued for damages. As a director of a corporate trustee, your personal liability is limited to the assets held in the fund. Thus, there is more security and it is less likely members will be subject to liability claims.
- If superannuation laws are breached, administrative penalties may be imposed on each trustee. This means, each trustee is liable for the penalties. A corporate trustee is advantageous if non-compliance occurs.
- A corporate trustee offers continuous succession. This means, if a member of the trust dies, the company will continue to operate regardless of death or incapacity of a member.
There are some disadvantages to using a corporate trustee:
- Compared to an individual trustee structure, a corporate trustee can be more expensive to set up and maintain. ASIC normally charges a fee if a company is registering for the first time, and an annual review fee. In addition, there is ongoing annual cost in preparing the company annual review.
- If laws are breached, penalties are imposed onto the corporate trustee. For example, if a corporate trustee fails to prepare financial accounts and statements.
There are many advantages and disadvantages to a corporate trustee structure. Whatever decision you make can impact how your fund is managed and maintained. Overall, having an SMSF is a great way to control where your superannuation payments go.
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