By: Daniel Butler, Director, DBA Lawyers
We examine yet another benefit of having an SMSF corporate trustee in addition to the many other compelling reasons why each SMSF should have a corporate trustee. (Click here for a recent article on Changing SMSF Trustees.) In particular, we outline below how to save time and money where an SMSF has a ‘special purpose company’ acting as trustee.
SMSF ‘special purpose company’
A corporate trustee of an SMSF can be an ordinary company or a ‘special purpose company’. Broadly, a corporate trustee of an SMSF meets the definition of a ‘special purpose company’ if it meets the following criteria:
- the constitution of the company prohibits distribution of the company’s income or property to its shareholders; and
- the sole purpose of the company is to act as the trustee of a regulated superannuation fund within the meaning of section 19 of the Superannuation Industry (Supervision) Act 1993 (Cth).
An SMSF company that has the requisite wording in its constitution and that has notified the Australian Securities and Investments Commission (‘ASIC’) that it is a ‘special purpose company’ qualifies for a reduced annual review fee (see table below). The notification to ASIC can be at the time of registration or at a later date.
Most constitutions have been drafted to only allow the company to be either type of company. Thus, where an existing company wishes to become a ‘special purpose company’, its constitution needs to be varied by a special resolution of its shareholders or as otherwise provided in the existing constitution (or what were previously known as memorandums and articles of association).
However, companies (or constitution updates) prepared by DBA Lawyers have flexible provisions to allow a company to change to an SMSF trustee or become an ordinary company without requiring any variation. That is, under the DBA constitution, no further paperwork is needed to ‘turn off’ or ‘turn on’ the special purpose (SMSF) company’ provisions. Thus, a DBA Lawyers constitution can result in substantial savings throughout the life of a company.
ASIC payment options of annual review fees
Current ASIC annual review fees for private companies as at 1 July 2016:
|Type of company||Annual review fee||Advance payment for 10 years||Comparison|
|A proprietary company, except a special purpose company||$249||$1,871||Over a 10-year period this represents a saving of $619 based on the current annual fee of $249|
|A special purpose company||$47||$352||Over a 10-year period this represents a saving of $118 based on current annual fee of $47|
Benefits of the advance payment option
As noted in the above table, over a 10-year period, an SMSF corporate trustee saves $118 based on the current annual fee of $47.
Similarly, a 10-year prepayment for an ordinary company saves $619 based on the current annual fee of $249.
The amount saved is greater as ASIC fees are indexed each 1 July and a prepayment ‘locks in’ the annual review fee at that time (ignoring time value of money).
Reduced risk of late payment fees
A late payment fee will be charged where payment is made later than two months after the annual review date. By choosing to pay its annual review fees in advance, the corporate trustee alleviates the administration of making 10 payments over a 10-year period and reduces the risk of having to incur late payment fees.
No refund of advance payment
Generally, no refund of the advance payment is available once the payment is made. For example, if a corporate trustee ceases to be a registered company during the 10-year period, it is not entitled to a refund for any remaining prepaid amount.
Payment must be made using a cheque and accompanied by a specific ASIC remittance advice form. The remittance advice form can be accessed at: http://download.asic.gov.au/media/3926062/fee-indexation-2016-advance-payment-of-annual-review-fee.pdf. The advance payment option cannot be made using online banking services.
Naturally, there are a range of other issues that need to be considered, including the timing of any tax deductions for a prepayment, and DBA Lawyers is well placed to provide assistance as needed.
The advance payment of ASIC annual review fees should be considered for those wanting to save time and money. Further information on this payment option can be found on the ASIC website: http://asic.gov.au/for-business/running-a-company/annual-statements/advance-payment-of-annual-review-fees/