In our opinion, the slightly increased cost of using a corporate trustee is not even close to a valid justification for having individual trustees of a self-managed superannuation fund (SMSF).
Here are the top reasons we offer to clients to always use a corporate trustee:
- Exposure to penalties only once under the new and improved penalty regime!
The SMSF administrative penalties rules (Tax and Superannuation Laws Amendment (Measures No 1) Act 2014 (Cth)) have formally become law, with the penalties component starting from 1 July 2014. The various penalised contraventions arise from compliance factors of “each trustee”. For such a contravention, each individual trustee would be liable to their own separate penalty — as opposed to a corporate trustee, which would receive only one penalty (payable by the directors). Choosing a corporate trustee means you are not multiplying the exposure to the penalty regime.
- Why risk personal assets?
The Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) provisions (e.g. sections 34, 84 and others) refer to “each” trustee having obligations. Clearly 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) makes more sense.
- Fewer obligations for non-member trustees
For a single member fund, it is possible for SMSFs to have individual trustees but the law requires that there be two individual trustees, with one being a non-member trustee. The corporate trustee option allows the non-member individual trustee to remove himself or herself entirely from the exposure and risks associated with trusteeship of an SMSF.
- Single Members can manage themselves
The corollary of 3 above is that a single member of an SMSF can become the sole director of the corporate trustee. A single member may not want another person directly involved in managing their super.
- Perpetual Succession
- A corporate trustee, if properly maintained with ASIC, remains in existence, even if the members die or become incapacitated.
- If individual trustees change through death of a member, exit or admission of members or otherwise, administrative hassles can result, such as having to change trustees, and then having to update ownership documents and the way in which investments are registered. The need to process a change of trustee may also require explanation to the relevant state or territory revenue office to ensure no duty applies. With a corporate trustee, there is no need to change the trustee in these circumstances.
- 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, then if a subsequent change of trustees occurs (admission, retirement etc.) the bank will typically require new lending documentation to be entered into. This does not happen with a corporate trustee being used.