Every self-managed superannuation fund (SMSF) should have a corporate trustee.
Here are our top reasons for choosing a corporate trustee:
1. Perpetual succession
A corporate trustee remains perpetually in existence, even if the members die or become incapacitated.
If the individual trustees of an SMSF change as a result of the death, exit or admission of members or otherwise, administrative action may be required, such as having to change trustees and then having to update ownership documents in respect of trust property and update the way in which investments are registered. The need to process a change of trustee may also require an explanation to the relevant state or territory revenue office to ensure that no duty applies. With a corporate trustee, there is no need to change the trustee or the title to any trust property in these circumstances.
2. Why risk personal assets?
The provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) (e.g. sections 34, 84 and others) refer to “each” trustee having obligations. These obligations could give rise to personal liability on each individual trustee. Having fewer trustees reduces the number of possible penalties that can apply to a typical family group.
Having a single, sole purpose corporate trustee that does not have personal assets exposed to liability under the SIS Act or otherwise (e.g. the risks associated with holding real property investments) thanks to the limited liability of companies makes more sense.
3. Less exposure to administrative penalties
Administrative penalties are imposed on trustees of SMSFs for contraventions of the SIS Act. Penalties are imposed on each trustee. This means that where the SMSF has individual trustees, each individual trustee is liable to pay their own separate penalty. Contrast this with a corporate trustee, which would receive only one penalty for which the directors are jointly and severally liable. Choosing a corporate trustee means you are not multiplying the exposure to the penalty regime.
4. No need for Non-member trustees
For a single member SMSF it is possible for the trustees to be individuals, but the law requires that there be at least two individual trustees, with one being a non-member trustee.
A sole member SMSF may however simply appoint a corporate trustee. This allows the non-member individual trustee to remove himself or herself entirely from the exposure and risks associated with trusteeship of an SMSF.
5. Single members can manage themselves
The corollary of 4 above is that the sole member of an SMSF can become the sole director of the corporate trustee. A single member may not want another person (a non-member) to be directly involved in managing their super.
6. You may have to do it anyway
In our experience, many banks offering limited recourse borrowing arrangements (LRBA) require a corporate trustee of an SMSF as a condition of the lending. So why not do it first to avoid transaction costs and delays later.
If an LRBA is in existence with individual trustees and a subsequent change of trustee occurs (e.g. admission, retirement etc.) the bank may require new lending documentation to be entered into. Using a corporate trustee from the outset avoids this complication.