By Solomon Forman, Financial Planner and Accountant
(If you need advice on self managed super funds, you can contact Solomon.)
More and more people choose to establish their own self managed super fund (SMSF),
and they do so for several reasons. They may have been dissatisfied with their previous
super fund, or perhaps they want to use an investment strategy that only super funds
like SMSF’s can accommodate. Establishing a new SMSF is not a complex matter if you
know what you are doing.
One of the crucial aspects of establishing a SMSF is to choose the trustee structures.
There are two options available. The first is an individual trustee whereby the members
become the trustees. The second option is to use a corporate trustee where a company
is the trustee and the members are acting as directors of that company.
There is a perception held by many people that the option of individual trustee is the
simpler and cheaper way to use in the long term rather than using a corporate trustee.
The fact is that if the corporate trustee is established in a shrewd way it has many
advantages and it is the cheaper and simpler way in the long term.
The perception that the corporate trustee is more complex and expensive was
born because many self managed super funds use a trading company as a corporate
trustee. This creates additional compliance requirements like company tax returns and
ASIC yearly lodgement fee requirements. If the SMSF uses a special corporate trustee
company which is called a ‘sole purpose superannuation trustee company’ (which is
simple and not expensive to establish) and the correct form is lodged with the ATO and
ASIC upon establishment, there is no ongoing requirement for lodging a company tax
return and ASIC yearly lodgement for this entity is heavily discounted, and therefore
there is no significant additional cost of using this corporate trustee compared to using
the individual trustees option.
As mentioned earlier, the corporate trustee structure has several advantages over the
individual trustee structure. The first is the ability to keep the same investment
ownership details, even if there is a change in membership. Because all the investment
assets in the self managed super fund have to be held in the name of the trustee, using
a corporate trustee will mean that once ownership is established, there is no need to
change it until the asset is being sold.
In contrast, when using individual trustees there are several scenarios where the
ownership details will have to be changed. As an illustrative example, David and
Margaret Ford established an SMSF called Ford Super Fund and chose to become
individual trustees. They have accumulated in the SMSF a property, share portfolio
and some cash in the SMSF bank account. As individual trustees, all the assets are
held under the following name: David Ford and Margaret Ford atf (as trustee for)
Ford Super Fund. They have now decided to join their daughter Elizabeth Ford to
their SMSF. They will now have to change all the ownership names to the following:
David Ford and Margaret Ford and Elizabeth Ford atf Ford Super Fund.
If you have never had to deal with bureaucracies you may think that this is not a big
issue. Once you do, you realise the headaches, waste of time and money that such
transactions will occur. If David and Margaret had used a corporate trustee they
would not need to change the ownership name when adding a new member to the
fund. A similar situation can occur when members wish to leave the fund.
Other advantages of corporate trustee involve complex and more technical matters,
including the ability to establish SMSF for the purpose of providing a lump sum and
pension. There is also the ability to claim a rebate on pension payments. Although
the ATO is currently not enforcing these matters, it can change without notice.
As you can see the long term running costs will not be significantly more using a
corporate trustee if it’s set up in a shrewd way, and there are important advantages
in doing so.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.