Types of SMSF structure

When you decide to open an SMSF, two types/structures are available.

  1. Individual trustee
  2. Corporate trustee

Below are the key differences between Individual and Corporate Trustee.

Individual trustee Corporate trustee
Structure

Two to four members.

Each member of the fund must be a trustee, and each trustee must be a member of the fund.

One to four members.

Each member of the fund must be a director of the corporate trustee (that is, the company), and each director of the corporate trustee must be a member of the fund.
Single member fund

There must be two trustees. One of the two trustees must be a fund member.

If the fund member is an employee of the other trustee, then the fund member and the other trustee must be relatives.

Sole member benefit does not exist. As the sole member SMSF must have two individual trustees, this still requires the sole member to find another individual to act as the second trustee and assist in managing the SMSF.

The corporate trustee can have one or two directors, but no more than that. The fund member must be the sole director or one of the two directors.

If there are two directors and the fund member is an employee of the other director, then the fund member and the other director must be relatives.

Sole member benefit exists. An SMSF can be set up where one individual is both the sole member and the sole director.
Fee

It is less expensive as there is no ASIC fee. So, setup cost and ongoing administrative requirements are lower.

Setup cost is around $350 Annual maintenance comprises of typically:

  • a) Administration cost: $1,200
  • b) Audit cost: $395

Note: Any extra work is charged separately. Examples of such extra work include establishing the Bare trust, preparing investment strategy, etc.

ASIC charges a fee during setup, and also a fee for ASIC annual review.

Please note that the fee is lower if you run the corporate trustee solely as a super fund trustee, but is higher if the corporate trustee also performs another functions such as running a business.

Setup cost is around $1,000 Annual maintenance comprises of typically:

  • a) Administration cost: $1,500
  • b) Audit cost: $395

Note: Any extra work is charged separately. Examples of such extra work include establishing the Bare trust, preparing investment strategy, etc.
Ownership You must inform the ATO and financial institutions (related to your SMSF) when you remove or add an individual trustee. This is time consuming and slightly expensive as most of the authorities and institutions will charge for the title changes. When you start or stop being the member of the SMSF, you cease as the director of the corporate trustee. You must notify ATO and ASIC for any changes to the directorship.
Assets Fund assets must be in the name of the fund, and must not be combined with member personal assets of a member. Fund assets must be in the name of the fund, and must not be combined with the personal assets of a director.
Penalties If the laws set in Super are breached, then the penalty is levied on each individual trustee. For example, if there are four individual members in the trustee, then all the four members will receive penalties. If the laws set in Super are breached, then the penalty is levied on the corporate trustee, instead of any of the individual members. For example, if there are four members/directors in the trustee, then only one penalty will be levied on the corporate trustee.
Succession Whenever changes in trustees occur, the fund is not likely to continue to operate as usual unless an appropriate succession plan is prepared. In the event of the death or incapacity of a member, the control of the SMSF and its assets by the corporate trustee is more certain.
Borrowing The LVR (Loan to Value Ratio) under individual trustees is usually lesser. Banks usually give less preference to individual trustees compared to corporate trustees. The LVR under corporate trustee is usually higher. Banks usually give preference to corporate trustees.
Estate planning flexibility The death of a member requires a change of trustee, and this gives rise to considerable administrative work and costs. Greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. A director can also have greater control over their succession plans by passing on their shares in the corporate trustee.