A self managed super fund will have either natural persons acting as trustees or a company acting as trustee (a corporate trustee structure where the individuals are directors of the company).
The report commissioned by the Government, Super System Review, Final Report released November 2015 stated that "[i]t is widely accepted by professionals and the ATO that a corporate trustee is superior."
Some of the benefits include:
Individual trustee
The easiest and cost-effective way to set-up a SMSF is with natural persons acting as trustees. There is no additional establishment cost to register a company.
Single member fund
A single member fund cannot have the member as the only individual trustee. If a choice is made not to use a company, the member must appoint a second trustee. It may be difficult to find a second trustee who is willing to take on this responsibility leaving a company the only option.
If a company is used as trustee, the member can be the sole director of the company. This gives the member complete control over the fund.
Corporate trustee
Where a company is the trustee of a fund, a proprietary limited (Pty Ltd) company is used with the members being the directors of the company.
Setting up a SMSF with a corporate trustee will be more costly due to the the costs associated with setting up a new company. ASIC's company registration fees as at 2018 was $488.
Most SMSF avoid using a company as a trustee because of the cost associated with the set-up of the company.
Despite the higher establishment cost, it is widely accepted that a sole-purpose corporate SMSF trustee is a superior structure, as the company exist only for the purpose of acting as trustee of a SMSF.
The sole-purpose SMSF trustee company does not trade in its own right, and is not required to lodge tax return. The trustee company is also eligible for a reduced ASIC annual review fee. As at 2018, the annual review fee was $53.
Perpetual succession
The corporate entity cannot die, so it enables better control in the event of member death or incapacity. In a SMSF with 2 members, if a member was to pass away, the SMSF with a corporatee trustee can continue - the company trustee will have the remaining member as the sole director. Compared to natural persons acting as trustee, a second person will ultimately be appointed as a co-trustee if the SMSF is to continue.
Greater administrative efficiency Over time, membership to the SMSF may change – new member may find their way into the SMSF and existing member out of the SMSF.
It is necessary for a member to also be a trustee. As superannuation law requires the assets of the SMSF be held in the name of the trustee. A change in trustee would require the legal title of the assets to be changed as the assets must be held in the names of all the trustees on behalf of the SMSF (such as having to update ownership of assets). The trustees must notify all relevant account providers and registers of the change, such as bank, share registry, etc. In some instances, this will necessitate the closure of existing account and re-opening of new account.
In comparison to a corporate trustee – where there is a change in membership, the corporate trustee will not change and only the directorship will change. Therefore, there is no change in legal title of assets with corporate trustee.
Greater estate planning flexibility
If a member dies, the remaining person cannot be the sole trustee (a SMSF with natural persons acting as trustees must have at least 2 natural persons acting as trustees). Corporate trustee structure allows for a sole member of a SMSF to be the sole director of the company, and there is no change of trustee.
Corporate trustee structure will also simplify the process of paying death benefits as an income stream to dependent beneficiaries.
Reduced risk of deliberate or accidental intermingling of fund and personal assets
Intermingling of super fund and personal assets is a breach of the covenant in section 52(2)(d) of the Superannuation Industry (Supervision) Act 1993. Trustees are required to keep the assets of the SMSF separate from their own assets. With a sole-purpose corporate trustee, it is much simpler and easier to manage this requirement as it provides clear separation of assets. The assets is held in the name of the corporate trustee, rather than in the natural persons' name where the trustees are natural persons.
Membership change Over time, membership to the fund may change – new member may find their way into the fund and existing member out of the fund. It is necessary for a member to also be a trustee, except a minor (see further below).
Superannuation law requires the assets of the fund be held in the name of the trustee. A change in trustee would require the legal title of the assets to be changed as the assets must be held in the names of all the trustees on behalf of the fund. The trustees must notify all relevant registers and offices of the change, such as bank, share registry, etc.
In comparison to a corporate trustee – where there is a change in membership, the corporate trustee will not change and only the directorship will change.
Clear separation of assets
Trustees are required to keep the assets of the fund separate from their own assets. With a sole purpose corporate trustee, it is much simpler and easier to manage this requirement as it provides clear separation of assets.
| Individual trustee | Corporate trustee | |
| Cost | No additional cost | Additional cost for setting up company |
| Assets of the SMSF held legally by | All individual trustees | Company |
| Separation of assets | Assets are in the name of all individual trustees, held for the SMSF For example, bank account show John and Jane Citizen ATF Citizen Super Fund |
Clear separation reduced risk of accidental intermingling of fund and personal assets. For example, bank account shows Citizen Pty Ltd ATF Citizen Super Fund |
| Succession | Bothersome when a trustee dies | Company cannot die, and offer continuity |
| Single member SMSF | Need to involve a second person who is not a member to be a co-trustee | No need to involve another person |
| Change of member/ trustee | Need to appoint or remove person as trustee, normally by Deed. Legal ownership of assets needs to be change to reflect all trustees. This may involve substantial work. |
No change to trustee (remains as the company). The person is appointed or removed as director of the company. No change in legal ownership of assets (remains as the company). |
| Death of member | Need to determine from the Deed procedure regarding deceased member. The deceased member's legal personal representative is appointed as a trustee, normally by Deed. Where the deceased member's legal personal representative is the remaining trustee, another person will need to be appointed as trustee to be a co-trustee. Legal ownership of assets needs to be change to reflect all trustees. There may be impediment on dealing with the SMSF’s assets upon a member's death. |
There is less work. No change to trustee (remains as the company). The deceased person is removed as director of the company. The deceased member's legal personal representative is appointed as a director. The remaining member can be the sole director of the company. No change in legal ownership of assets (remains as the company). |
| Limited recourse borrowing arrangement | Most lenders require corporate trustee structure | Most lenders require corporate trustee structure |
| SMSF administrative penalties imposed by ATO | Each individual trustee is individually liable for the penalty. For example, the penalty for not preparing accounts and statement is $2,100. Each trustee is penalised $2,100. If there are 4 trustees, the aggregate penalty is $8,400. |
Directors of the company are jointly and severally liable. For example, the penalty for not preparing accounts and statement is $2,100. The directors together are penalised $2,100. The penalty remains at $2,100 regardless of the number of directors. |
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