An SMSF can either have a corporate trustee or individual trustees. An SMSF can have up to 6 members, and generally speaking, the members must be the same as the individual trustees (or the same as the directors of a corporate trustee).
We strongly recommend that an SMSF have a sole purpose corporate trustee (that qualify for a substantially lower ASIC annual review fee), rather than individual trustees or a company that carries on other activities. The up-front cost of establishing the company generally results in long-term benefits that far outweigh the upfront cost. These can be summarised as follows:
| Corporate Trustee | Individual Trustees |
| Continuous succession
A company has an indefinite life span; in other words, it cannot die. A company makes succession to control more certain on death or incapacity. |
Ceases upon death
Timely action must be taken on death to ensure the trustee/member rules are satisfied. (SMSF rules do not allow a sole individual trustee/member SMSF.) |
| Administrative efficiency
On the admission or cessation of membership, that person becomes or ceases to be a director of the company. Thus, the title to all assets remains in the company’s name. |
Extra and costly paperwork
The admission or cessation of a member requires that person to become or cease to be an individual trustee. As trust assets must be held in all trustees’ names, the title to all assets to be transferred to the new trustees. |
| Sole member SMSF
You can have an SMSF where one individual is both the sole member and the sole director. |
Sole member SMSF
A sole member SMSF must have two individual trustees. |
| Greater asset protection
As companies have limited liability, they provide greater protection where a party sues the trustee for damages. |
Less asset protection
If an individual trustee suffers any liability, the trustee’s personal assets are also exposed. |
| Estate planning flexibility
A company offers far greater flexibility for estate and succession planning, as the trustee does not change as a result of the death of a member. |
Extra administration and costs
The death of a member gives rise to considerable administrative work and costs at an inopportune time. |
| Lower penalties
The administrative penalty regime typically only applies to a company once for each contravention. |
Higher penalties
An administrative penalty can be imposed on each individual trustee for each contravention. Thus, having two individual trustees can double the administrative penalty (typically $18,500 each for FY2024) that would otherwise apply to a corporate trustee. |
| Overseas Members
It is easier to evidence that the central management and control (‘CM&C’) of a corporate trustee remains in Australia. |
Extra risk
An SMSF with individual trustees would generally have greater difficulty showing its CM&C remained in Australia. |
| Lump sums and pensions
An SMSF with a corporate trustee can pay benefits either as pensions or as lump sums. |
Lump sums or surrendering a pension
A member must surrender their pension entitlement if they wish to obtain a lump sum (a fund must have its primary purpose of paying a pension). Thus, extra paperwork is needed to surrender a pension entitlement to a lump sum payment. |
| SMSF borrowing (LRBAs)
Lenders prefer dealing with a corporate trustee when providing a limited recourse borrowing arrangement. |
More legal work
Lenders may have to comply with greater legal hurdles with lending to individual trustees. |
Clients should carefully consider setting up the correct structure from the beginning, as significant costs and administrative effort is involved in any future changes of trustee.
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For more information about the advantages of having a corporate trustee, click on the articles listed below: