When establishing a Self Managed Super Fund (SMSF) there are two key ways to structure the fund. You can either have individual trustees or use a company to act as the trustee of the SMSF and the individuals as directors of the company.

Below will address the advantages and disadvantages of using a company to act as trustee of the SMSF. It is important to note that the company never trades nor does it lodge financials or tax returns. The sole purpose of the company is to act as the trustee of the SMSF. This type of company is commonly referred to as a special purpose company.

 

Estate planningAdvantages

  • Using a company as trustee will enable you to run a single member fund. If establishing an SMSF with individual trustees there must be at least two trustees of the SMSF.
  • A company never dies, where individual trustees do. It is far more administratively complicated to change the trustees of an SMSF than it is to change the directors of the company (corporate trustee). For example, if you were required to change an individual trustee of the SMSF, you must change the name on each investment owned by the SMSF. This can be costly and is not an issue when changing the directors of the corporate trustee.
  • Under new regulations the ATO can issue penalties if breaches occur. Each penalty unit is $170 per trustee. For minor breaches, 10 penalty units may apply. Therefore, if there are two individual trustees of the SMSF, double penalty units apply.
  • By using a company as trustee of the SMSF, it makes it simple to separate the funds assets from the individual’s assets.
  • When borrowing inside an SMSF, depending on the bank, a company as trustee of the SMSF may be required.

 

Disadvantages

  • There are additional costs to set up a company to act as the trustee of the SMSF.
  • ASIC charges an annual regulatory fee for the company. If the sole purpose of the company is to act as the trustee of the SMSF, currently ASICs annual fee is $43.

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David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

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