Choosing Corporate Trustee Vs Individual Trustee for SMSFs – A Detailed Analysis

Corporate Trustee vs Individual trustee for Self-managed Superannuation Funds (SMSFs) – what is the better structure for you? Whether you are about to set up an SMSF or are reviewing your SMSF trustee structure, this comprehensive guide aims to provide an in-depth look into the two trustee structures for SMSFs: individual trustee and corporate trustee.

SMSFs provide an avenue for managing retirement funds tailored to individual needs. One critical decision in the setup of an SMSF is the choice of trustee structure, either a corporate trustee vs individual trustee. This decision has far-reaching implications for the management and compliance of the fund, so a careful understanding is essential.

Undertanding SMSFs

If you are new to the world of SMSFs, it’s important to understand that an SMSF is subject to regulation by the Australian Tax Office (ATO) under the Superannuation Industry (Supervision) Act 1993 (SISA). This legislation prescribes specific requirements for the structure and operation of SMSFs.

An SMSF, at its core, is a private superannuation fund. Its Sole Purpose is for the trustees to effectively manage the fund’s assets for the ultimate benefit of its members upon their retirement.

When embarking on the establishment of an SMSF, one crucial decision to make is the choice of trustee type: either individual or corporate. Each option presents distinct advantages, responsibilities, and considerations. Importantly, this decision not only impacts the initial SMSF Set Up but also influences its ongoing management, compliance obligations, and even its response to significant life events such as death or divorce and SMSF.

A SMSF has the capacity to accommodate up to six members, all of whom are obligated to serve as either individual trustees or in the case of a corporate trustee structure, all members must hold positions as directors. This arrangement ensures complete control over the fund’s Investment Strategy and facilitates compliance with regulatory standards.

Trust and Key Terms to Remember

Trust: A trust is a legally established arrangement in which a trustee is responsible for holding and overseeing assets for the benefit of one or more beneficiaries. A SMSF is classified as a trust but is more generally referred to as the ‘fund’.

Trustee: The trustee is an appointed individual or company entity entrusted with the responsibility of managing and administering the day-to-day operations of a trust on behalf of the members of the SMSF.

Individual Trustee: An individual trustee is a person who assumes the trustee role.

Corporate Trustee: A corporate trustee, on the other hand, is a company that serves as the trustee of a trust. The company has one or more directors and shareholders.

SMSF Deed: A trust deed is a written document that outlines the terms and conditions governing the fund.

SMSF Member: A member is an individual who has contributed their superannuation to the fund. A SMSF can have up to 6 members and all members must be either an individual trustee or in the case of a corporate trustee, a director of the corporate trustee.

Comparison of Corporate Trustee vs Individual Trustee

Choosing the right trustee structure is a pivotal decision for your SMSF’s governance and future. By understanding the implications of both corporate and individual trusteeship, you can make a well-informed choice that supports your SMSF’s long-term success and aligns with your specific needs.

Corporate trustees are the most commonly used structure and generally overall, it is considered that a corporate trustee is superior compared to an individual trustees structure.

ASPECT	CORPORATE TRUSTEE A company acts as the trustee	INDIVIDUAL TRUSTEES
Sole Member SMSF	Only requires the member to be a sole director. Note, can have one additional non-member director to assist if desired.	Requires a minimum of two individual trustees.
Availing of the maximum allowed 6 members	Easy utilisation of the maximum number of SMSF members (up to 6) as all members can be directors.	NSW, Vic, ACT, QLD and WA State legislation only allow up to four trustees and therefore a corporate trustee is required for 5 or 6 members in these States.
Legal Entity	A company is a separate legal entity from its directors and members of the SMSF.	Each individual trustee is jointly and severally liable for the SMSF’s actions and obligations.
Continuity and Succession	A company has an indefinite lifespan. Easier to manage changes in trustee or member structure, such as appointing new directors if a member leaves or passes away.	Requires timely legal changes to the SMSF deed if there are changes in trustees or members.
Ownership of Assets	SMSF assets are registered in the name of the corporate trustee (e.g., XYZ Pty Ltd ATF ABC SMSF).	SMSF assets need to be registered in the individual names of each trustee and this can end up quite long where there are multiple members/trustees (e.g., John and Jane Doe ATF ABC SMSF and Bill and Mary Jones ATF ABC SMSF).
Identification	Each Director requires a Director ID (commenced 5 April 2022)	No further identification required.
Administrative Simplicity	Can be more straightforward to administer and manage, especially with changes in members or trustees.	May require more administration if there are changes in trustees or members.
Liability and Asset Protection	Generally, provides a higher level of personal asset protection as the company is liable rather than individual members.	Individual trustees have personal liability for SMSF actions, which could potentially impact personal assets.
Administrative Penalties	One penalty for each contravention of the laws. Eg if the maximum penalty was is applied to a contravention in 2024 it would be $18,780.	Penalties can be imposed on each individual trustee for each contravention of the law. Eg Say there are 3 members/trustees and the maximum penalty is applied for the contravention in 2024, each trustee would be liable for $18,780.
Costs	Initial setup costs. Ongoing costs related to a corporate trustee may be higher due to ASIC fees and other compliance requirements.	Generally, no initial setup costs, but there may be higher costs if legal changes are needed in the future (e.g. when there is a change in trustees).
Borrowing	Can make borrowing for SMSF purposes more straightforward as the company’s name remains the same despite changes in members.	Some lenders may require the SMSF to have a corporate trustee. May require additional administrative steps if there are changes in individual trustees for SMSF borrowing.
Flexibility and Control	Provides flexibility in adding or removing members, as the company remains the same.	Requires careful consideration when adding or removing members, as changes to trustees may require legal documentation and compliance.
Australian Residency	Generally easier for travelling Directors to show the SMSF’s central management and control remained in Australia	Harder for traveling trustees to show the SMSF’s central management and control remained in Australia

Extra Considerations for Single Member SMSFs

If a corporate trustee structure is not used in the case of a single member SMSF, a second person is required to be a trustee (even though they are not a member with a financial interest in the SMSF).

Whereas a corporate structure allows the member to be the sole director of the company trustee without involving any other person.

Besides these typical advantages of a corporate trustee, the decision to opt for this structure over an individual trustee in a single member SMSF is often influenced by the desire to avoid involving a person without financial interest in the SMSF. Additionally, the need for privacy and a wish to circumvent the imposition of trustee obligations on such a person often guide this choice.

Changing Existing Trustee Structures

There are various reasons a change of trustee could arise such as admitting or removing a member of the fund or changing from an individual to a corporate trustee structure.

The SMSF deed lists the fund’s trustee/s. Therefore, changing trustees requires the deed to be amended by way of a Deed of Variation and an accompanying trustee resolution, both of which are prepare by a lawyer.

Whilst this is a relatively simple process to take place, it is important to remember the other administrative requirements to action such as:

Inform the Australian Taxation Office. Generally, a specialist SMSF Accountant would take care of this process.

Change the trustee details on all investments.

Change the trustee details on bank accounts and share exchanges.

Have the new trustee review the Investment Strategy and document this process.

Conclusion

Corporate trustees and individual trustees each offer unique advantages and considerations in the management of a Self-Managed Super Fund (SMSF). While corporate trustees are the most common choice and may bring enhanced structure and ease of asset control, individual trustees often present a less complex and more cost-effective solution (depending on the circumstances). The choice between these options should be made with great care and in accordance with individual needs and circumstances.

As a CPA accounting firm in Caloundra, QLD, Australia, Wardle Partners Accountants & Advisors have been specialising in these common SMSF set-ups, along with administration, processing, compliance advice, accounting, taxation, and wind-ups for over 40 years. Please note that the above information is general in nature. Wardle Partners does not hold an Australian Financial Services Licence (AFSL) and our company nor any of our employees or directors are not authorised representatives of an AFSL. We do not provide financial product advice or recommend any financial products either expressly or implied.

Through this article, we strive to furnish insights that can aid in the decision-making process concerning trustee options in SMSF management specifically understanding corporate trustee vs individual trustee structuring. Further details on related topics are available in our other blogs, forming a well-rounded resource for SMSF considerations. Should you require professional assistance or have any questions, please do not hesitate to contact us or schedule a complimentary consultation with one of our experts.

Did You Know?

According to ATO statistics, of 30 June 2022 66% of SMSFs had a corporate trustee. Interestingly majority use of a corporate trustee is increasing with 86% of SMSFs established during 2021-22 were established with a corporate trustee.