Choosing an SMSF trustee structure carefully

An SMSF must be established with either individual trustees or a corporate trustee, with distinct rules applying to each structure.

Individual trustees:

•   All members must be trustees, and vice versa.

•   Single-member funds must have at least two trustees and only one must be a member.

•   Members cannot be an employee of another member unless they are relatives.

•   Changes in membership-e.g. death or exit-require restructuring or replacement of trustees.

•   Although an SMSF can have up to six members, some state and territory laws restrict the number of trustees a trust can have to less than six. As an SMSF is a type of trust, trustees are urged to seek professional advice to check if their fund is affected. If it is, trustees are encouraged to structure their SMSF with a corporate trustee.

Corporate trustee:

•   A company acts as trustee, with members as directors.

•   For a single-member fund, the member can be either:

-   the sole director of the corporate trustee

-   one of two directors of the corporate trustee provided either the member and the other director are relatives, or the member is not an employee of the other director.

•   Directors must obtain a director ID and comply with the requirements of the Corporations Act 2001.

Other considerations

The ATO also highlights other practical considerations when choosing a SMSF trustee structure.

Establishment and ongoing costs

Cost considerations differ depending on the trustee structure, with corporate trustees subject to Australian Securities and Investments Commission (ASIC) registration and ongoing annual review fees, although concessional rates apply where the company acts solely as trustee of a superannuation fund.

SMSF establishment costs can be paid either personally or from the fund, with regulation 5.02 of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) allowing these costs to be charged against a member's benefits.

Where costs are paid personally, trustees may seek reimbursement from the SMSF provided the reimbursement relates strictly to establishment costs and is made as soon as the fund has sufficient cash. When done correctly, such reimbursement is not treated as a contribution, borrowing or financial assistance, as confirmed in SMSFR 2009/2 Self-Managed Superannuation Funds: the meaning of 'borrow money' or 'maintain an existing borrowing of money' for the purposes of section 67 of the Superannuation Industry (Supervision) Act 1993. However, if reimbursement is not sought for costs incurred on behalf of the fund, the payment will be treated as a contribution.

Importantly, establishment costs are capital in nature and not deductible, and trustees, including directors of a corporate trustee, cannot be remunerated for performing trustee duties, even where they have personally undertaken the fund's establishment.

Governing rules

Trustees and directors must comply with the SMSF trust deed and superannuation laws, while corporate trustees must also adhere to the company constitution and the Corporations Act. Directors are required to obtain a director ID prior to registration, with penalties applying for non-compliance.

Ownership of SMSF assets

Fund assets must be kept separate from personal assets and held in the correct legal name.

Individual trustee structures require asset titles to be updated when trustees change, which can be costly, whereas corporate trustee structures avoid this issue as ownership remains in the company name despite changes in directors.

Succession

Individual trustee funds must maintain at least two trustees, requiring restructuring if a trustee leaves or dies. In contrast, corporate trustee structures provide greater continuity, as the company remains unchanged even when directors change, reducing administrative complexity.

Key takeaways for practitioners

• Approximately 72% of SMSFs utilise a corporate trustee structure, compared to 28% with individual trustees, highlighting the growing preference for and advantages associated with using a company as trustee of an SMSF.
• The trustee structure decision is foundational and although not too difficult to unwind, it requires careful upfront consideration aligned to client circumstances and long-term strategy.
• Corporate trustees may provide greater administrative efficiency and succession planning advantages, particularly for single-member funds or evolving membership structures.
• Practitioners should ensure clients understand the ongoing legal obligations attached to each structure, including director ID requirements and governance responsibilities.
• Early professional advice is critical, as the ATO continues to emphasise that structural decisions directly impact compliance risk and operational flexibility over the life of the SMSF.