Self-managed super funds (SMSFs) in Australia must be set up as trusts with either corporate or individual trustees. These trustees are legally responsible for the SMSF’s compliance with Australia’s superannuation and tax legislation.
Whether you should have an individual or corporate trustee structure for your SMSF depends on your individual situation. We touch on some of the differences between an individual trustee and a corporate trustee structure, including the borrowing implications of both.
SMSF Trustees explained
Regardless of whether an SMSF trustee is an individual, or a corporate structure, the responsibilities remain the same; to manage and own the fund assets on behalf of the fund members and its beneficiaries. Self-managed super funds are ATO-regulated which means that the Australian Taxation Office can impose penalties upon SMSF trustees who do not comply with taxation or superannuation laws. A trustee declaration must be signed to indicate that the trustees of an SMSF understand their legal obligations.
A super fund trustee is also responsible for setting and complying with the fund’s trust deed, including guiding the fund’s investment decisions by developing an investment strategy.
SMSF trustee structures will differ between SMSFs, depending on the fund’s members, objectives and financial situation.
As the title suggests, individual trustees are trustees who are a natural person (or persons) and are appointed to be the trustee of an SMSF. Some of the key features of an individual trustee structure include:
- – For single-member funds, there must be two individual trustees.
- – Each fund member must be a trustee for a self-managed super fund with two to six members.
- – There are no ASIC fees for funds with individual trustees.
- – If a member leaves or joins the fund, the title of all SMSF assets must be changed. State government authorities may charge a fee to do this, which can mean considerable administrative work.
- – The personal assets of each trustee may be exposed if any of the individual trustees suffer a liability.
- – Without an appropriate succession plan in place, a fund with an individual trustee structure is likely to cease operating in the event that a member passes away.
Corporate trustee structure
Under a corporate trustee SMSF, a corporate structure acts as the trustee, not individual people. Typically, a sole-purpose Australian company is established to serve as the corporate trustee. There are several other differences in trustee requirements between a corporate trustee and an individual trustee, which include:
- – All fund members must be a director of the trustee company and hold a Director Identification Number (Director ID).
- – For a single-member fund, the sole member must be the sole director of the trustee company.
- – There are ASIC fees for registering a corporate trustee and conducting an annual review (known as the annual review fee). If the corporate trustee is a special purpose company, then the ASIC annual review fee is much lower.
- – A corporate trustee structure offers greater protection in the event of a liability claim, as the assets are owned by the company, not the members individually. Asset protection via limited liability is often a key feature that attracts SMSF owners to opt to have a corporate SMSF trustee.
- – Similarly, corporate trustees offer a better degree of certainty for what’s to happen with the fund in the event of a member’s death.
Borrowing implications for different SMSF trustee structures
One of the primary reasons superannuation investors choose SMSFs over APRA-regulated funds is the greater flexibility, control, and investment choice under a self-managed super fund. Borrowing to invest, particularly in direct property, is one of the key benefits that SMSFs hold over traditional super funds. However, the trustee structure that your fund has can impact your borrowing.
Borrowing to invest within an SMSF legally requires a Limited Recourse Borrowing Arrangement (LRBA). Many financial institutions prefer to establish an LRBA under funds with a corporate trustee. Similarly, a corporate trustee often has a higher loan-to-value ratio (LVR), potentially providing a higher borrowing capacity than individual trustee funds.
SMSF Loan Experts can help you borrow under your self-managed super fund
At SMSF Loan Experts, we are specialists in establishing limited recourse borrowing arrangements for SMSF property investment. Regardless of your SMSF trustee fund structure, talk to our experienced team about the best lending solution for your self-managed super fund.