Superannuation

What are the advantages of a corporate trustee

By Nadine Hill, Principal

19 February 2023

Thinking of a SMSF? A corporate trustee is a smart option

When it comes to self-managed super funds, there are compelling reasons to have a corporate trustee.

A self-managed super fund (SMSF) operates through a trust structure, so a trustee is needed to fulfil a number of roles including making sure the SMSF complies with super regulations.

In a professionally managed super fund, a board of trustees makes decisions on behalf of all fund members. SMSFs work a little differently. Each member is also a trustee – or a director of the trustee company if you choose a corporate trustee.

Families often tussle over whether their SMSF trustee should be individuals or a special purpose company. We look at five key reasons why it pays to use a corporate trustee. 

1. A corporate trustee won’t pass away

It’s a reality of life that none of us live forever. And when you have a SMSF, the passing of a trustee, or the arrival of a new trustee to the fund, can bring significant administrative hassle including the need to change the names on bank accounts, shareholdings and other assets. Using a corporate trustee makes life easier from a succession perspective.

2. Banks usually insist on a corporate trustee

You may not have immediate plans to use limited recourse borrowing through your SMSF, but this could change in the future. If your SMSF applies for a loan, the bank will usually insist on a corporate trustee. 

3. Better asset protection

If a SMSF is sued and a large debt results, the trustee’s personal assets can be at stake. The prospect of your SMSF being sued may sound unlikely, but let’s say your SMSF owns an investment property, and someone gets injured while working on the property. This could leave your SMSF liable to pay damages. If the SMSF’s assets are insufficient to cover the cost – and the fund is run by individual member trustees, you can be personally liable to pay the balance1. As a separate legal entity, a corporate trustee offers better protection.

4. It’s easier to maintain "separation of assets” 

One of the overarching rules of SMSFs is that fund trustees must keep personal assets separate from SMSF assets. Having a corporate trustee helps to prevent breaching this rule.

5. Minimising penalties

If your SMSF contravenes certain super rules, the ATO is able to impose administrative penalties. However, these penalties are imposed on each trustee. For example, if a penalty of, say, $1,000 is levied against a SMSF with four trustees, each trustee is liable to pay $1,000 meaning a total of $4,000 is paid. Using a corporate trustee would mean the penalty of $1,000 would apply only once.

We’ve focused here on the key advantages of using a corporate trustee – there are other benefits. To find out more, or to learn more about setting up a corporate trustee for your SMSF, speak to the team at Brentnalls SA. 

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1. https://growsmsf.com.au/wp-content/uploads/2020/09/Case-highlights-need-for-public-risk-insurance.pdf 

Disclaimer

The information provided in this article does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.