Choosing Between an Individual or Company Trustee for Your SMSF

Relevant For:

Individuals and business owners managing or considering setting up a Self-Managed Superannuation Fund (SMSF).

Key Points:

  • Company trustees simplify member admission and offer perpetual succession.
  • Single-member SMSFs benefit from sole control under a company trustee.
  • Asset separation and protection are more effective with company trustees.
  • Switching trustee structures is flexible but requires proper procedures.
  • ATO penalties impact individual trustees more severely than company trustees.

Full Article:

Selecting the right trustee structure for your Self-Managed Superannuation Fund (SMSF) is crucial. While a company trustee often proves more advantageous, it comes with an initial setup cost of around $1,000 and an ongoing annual ASIC fee of around $100 (assuming the company qualifies as a ‘special purpose company’).

Admitting New Members

Adding a new member to your SMSF is more straightforward with a company trustee. The new member simply becomes a director of the company, which involves filling out a form and notifying ASIC. In contrast, appointing an individual trustee requires registering the new trustee as a legal owner of all fund assets, which can be time-consuming and costly due to the need to transfer property, shares, trading accounts, and bank account details.

Single Member Funds

For single-member funds, a company trustee is often the best option. A company trustee allows the sole member to be the sole director, providing complete control over the fund. If an individual trustee is chosen, a co-trustee must be appointed, who will need to be involved in all fund activities.

Perpetual Succession

A company offers perpetual succession, meaning the death of a member does not affect the holding of investments. With individual trustees, the death of a member necessitates transferring legal title of assets, which can be a lengthy process.

Separation of Assets and Asset Protection

Legally, SMSF assets must be kept separate from trustees’ personal assets. This is easier to manage with a company trustee. Additionally, holding investments under a company trustee provides better asset protection from potential creditors compared to holding them under individual trustees’ names.

Flexibility in Changing Trustees

Your choice of trustee structure is not permanent. You can switch from individual trustees to a company trustee, or vice versa, by appointing the new trustee according to the Super Fund Deed and transferring the fund’s assets.

ATO Administrative Penalties

The ATO has broader powers to penalise SMSF trustees for contraventions. Administrative penalties apply to each individual trustee, potentially resulting in higher total penalties compared to a company trustee, where only one penalty applies, shared among the directors.

Choosing the right trustee structure for your SMSF is essential for effective management and compliance. While a company trustee generally offers more benefits, consider your specific circumstances and seek professional advice to make the best decision for your fund.