Statistics from the Australian Tax Office show that corporate trustee structures are not favoured by self managed super funds, but in many cases the benefits of this structure outweigh the short term cost savings of an individual trustee.
This trend can be seen to correlate with the increase of online providers in recent years which can include outsourcing accounting functions to foreign countries (such as Sri Lanka or Vietnam to name a few) offering "free SMSF set-up" and the lack of advice of the benefits of corporate trustee. In many cases these online providers focus on low cost establishments costs however do not provide guidance or advice on the best structure based on a client's individual situation.
In the opinion of Clarke McEwan a corporate trustee is always the best choice and any accountants or advisors recommending individual trustees should be made to justify this decision to the client. When deciding whether an SMSF is right for your client, practitioners are faced with their first question - will an individual or corporate trustee structure be best for the client and their SMSF?
When setting up an SMSF, individuals must appoint either two or more individuals or a company to act as the trustee of their fund. The trustee structure the client chooses is critical for the long-term operation of their fund and will influence how their fund is administered and the cost of setting up and running their fund. It's important the practitioner helps the client choose the structure that best suits their needs and the needs of the other members in their fund.
Under superannuation law, an individual trustee structure means there cannot be a single member in a fund; there must have at least 2 members and a maximum of 4 members. Generally, subject to certain exceptions, all members must be trustees of the fund and all trustees must be members of the fund.
While establishing an SMSF with individuals as trustees may save the client a few dollars in the short term, the benefits of registering a corporate trustee for their SMSF far outweigh the short term savings. Here are the key reasons why we believe you should advise clients to use a corporate trustee
The key reasons to use a Corporate Trustee are for asset protection, and the separation of asset; reduced ATO penalties, in the event of borrowing to purchase property; succession upon death; and ownership of SMSF assets.
For further information about establishing a self-managed super fund contact Clarke McEwan.