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Individual vs corporate SMSF trustees

The ATO urges self managed super fund (SMSF) members to ensure they understand the differences between the two types of trustees-individual and corporate.

The choice of trustee will affect the way the fund is administered and the type of benefits it is able to pay, so it is important to choose a structure that suits the SMSF’s circumstances.

A corporate trustee is a company incorporated under the law that acts as a trustee for the fund. If a member of the SMSF already owns a company, they may choose it as trustee as long as it meets the requirements.

An individual trustee structure is one which is operated by fund members who also act as trustees.

When considering both structures it is important to look at the issues that affect SMSFs:

Costs and convenience

Individual trustees, with each member acting as a trustee, can have lower establishment costs because a separate company does not have to be set up to act as a trustee.

Corporate structures are usually more expensive to set up and slightly more expensive to maintain.

Governing rules

Individual trustees must follow the rules in the fund’s trust deed and superannuation laws.

Directors of the corporate trustee must follow the rules in the fund’s trust deed, superannuation laws, as well as the company’s constitution and the Corporations Act 2001.

Administration/reporting

Individual trustees have fewer reporting obligations and, therefore, can be simpler to administer. They must also appoint an independent auditor to audit the fund’s operations each year, lodge a self-managed super fund annual return for the fund and pay an annual supervisory levy to the ATO.

Having a corporate trustee can make it easier to administer the ownership of fund assets and keep the assets of the fund separate from any personal or business assets.  In regards to reporting, corporate trustees have the same obligations as individual trustees, as well as reporting obligations to the ATO and an annual review fee to the ASIC.

Posted on 14 March '14 by , under Super.

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Self-managed super funds (SMSF) aren’t just about financial investment

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

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