Self managed super fund trustees
Here are the obligations and responsibilities that come with being a self managed super fund trustee, and the different trustee options you have.
Key takeaways
- SMSF members can choose between an individual trustee structure or a corporate trustee (also known as a company trustee).
- With a corporate trustee the fund assets are held in the company name, and fund admin and compliance is largely managed by the trustee.
- A corporate trustee can be more expensive, however it can also save SMSF members a lot of time and stress.
The difference between SMSF members and SMSF trustees
All SMSFs must have between 1 and 4 members. Members are usually family members and are the people who contribute to the fund throughout their working life and benefit from the fund in retirement.
All SMSFs must also have a trustee, who is responsible for managing the fund's assets and ensuring the fund meets its legal and tax requirements. Members have the choice between 2 trustee structures: an individual trustee structure or a corporate trustee (also known as a company trustee).
The trustee structure you choose will affect the cost of the fund and how it's managed.
Individual trustee structure
This structure involves the members of the fund (2 to 4 members) also acting as individual trustees for the fund. If you're the only member of your SMSF you can still opt for this structure, but you'll need to find 1 other person to act as a trustee of your fund along with you.
The fund assets (for example investments like shares and property) are registered under the names of the individual trustees (who are also the fund members). Let's say Bob, Jeff and Mary set up their own SMSF and choose to be the individual trustees of the fund. The assets will be registered under Bob, Jeff and Mary. This option is usually lower in management costs but has more admin duties which can become expensive.
Pros and cons of an individual trustee structure
Pros
- There's no initial establishment fee to pay to ASIC.
- There's no annual review fee to be paid.
- Members have full control and responsibility over the SMSF.
Cons
- If your SMSF receives a fine or penalty, each individual trustee will be fined. For example, if the penalty was $1,000, each trustee would be fined $1,000.
- More ongoing admin work to manage, which can be time-consuming.
- Assets are held in the name of individual trustees, so there's more paperwork (and more costs!) to manage when a new member joins or an existing member leaves the SMSF.
- If you're the only member of your SMSF, you need to find 1 other person to act as a trustee with you (this person won't be a member of the SMSF).
Corporate trustee structure
Here, the SMSF members elect a company to act as the trustee of the fund instead of being the trustees themselves. With this structure, the SMSF members are not considered trustees, but they must be directors of the fund.
The assets are registered under the company instead of under the individual names of the members. For example, instead of the assets being registered under Bob, Jeff and Mary's names they'd be registered under "Company Name Pty Ltd".
If you are the only member of the SMSF, you can act as the sole director. As you need to hire a company to act as the trustee, this option can be more expensive. However, you won't need to edit the asset ownership documents when fund members join or leave, as the assets are simply registered under the company name.
Pros and cons of a corporate trustee structure
Pros
- If your SMSF receives a fine it'll go to the corporate trustee and the cost will be split evenly between the directors (the SMSF members).
- Less ongoing admin work to manage, as the corporate trustee helps with this.
- Assets are held in the company name, so the ownership documents don't need to be changed each time a new member joins the SMSF, or an existing member leaves.
- If you're the only member in your SMSF, you can act as the sole director without needing to find another trustee.
- Having a corporate trustee ensures SMSF members' personal assets are kept separate from the fund assets, which is a legal requirement.
Cons
- ASIC charges a set-up fee for establishing a new corporate trustee.
- More ongoing administration expenses, including an annual review fee.
- SMSF members must be directors of the company, which could become time-consuming.
Expert insight: Think carefully before setting up an SMSF
"While SMSFs are often promoted by advisers and accountants as the ultimate choice for those seeking control and flexibility over their superannuation, they are not suited for everyone. The benefits of SMSFs come with significant responsibilities, costs and risks that need careful consideration. Think of it like owning a car. While car ownership offers freedom, the ease and practicality of alternatives like public transport or rideshare may outweigh the complexities and expenses of car ownership."
Who can be an SMSF trustee?
Anyone over the age of 18 is legally able to be the trustee of an SMSF. If you're the member of an SMSF, you can be the trustee of the SMSF too if you've opted for an individual trustee structure as opposed to a corporate trustee structure (which is a company). But just because you're able to be a trustee, doesn't mean you should be. Make sure you understand all the legal requirements and responsibilities before your agree to be trustee of your SMSF.
Duties and obligations of an SMSF trustee
Regardless of which trustee structure you choose, there are obligations that trustees need to meet. Even if you choose a corporate trustee, all SMSF members are personally liable for all the decisions made by the fund.
Here are some of the main obligations of SMSF trustees:
Trustee declaration and trust deed
The trust deed is a legal document outlining the rules and objectives of the SMSF including how it will be managed. This must be prepared by a professional (such as an SMSF administrator or a tax agent), under the guidance of the trustee.
The trustee declaration highlights the responsibilities of all trustees as regulated by the ATO. Each SMSF trustee and director must sign and date their own declaration within 21 days of joining the fund.
Sole-purpose test
Trustees are responsible for ensuring that the fund is run solely for the purpose of funding the retirement of its members and not for any other reason (eg to access attractive tax concessions).
Managing the fund's investment strategy
Trustees create the fund's investment strategy to ensure the fund is likely to meet the retirement needs of its members. Trustees also review the investment strategy on an ongoing basis and adjust this when the needs of members change. You can read more about setting an SMSF investment strategy here.
As well as ensuring the investments are in the best interests of members, the trustee also makes sure these investments meet legal requirements. For example, members of an SMSF cannot invest in a property and rent it out to a family member.
Keeping fund assets separate
Trustees need to make sure that members' personal assets and finances are kept entirely separate from the fund's assets and finances. This is a legal obligation of all SMSFs.
Managing contributions
Trustees are responsible for accepting and managing all contributions from fund members, including personal contributions and contributions from employers as part of the compulsory super guarantee. When members of the fund retire, trustees also need to manage their benefit payments now that they're able to access their super.
Annual audit
All SMSFs need to be audited annually by an approved SMSF auditor. Trustees must arrange this audit each year and report this to the ATO.
Keeping fund records
Trustees are responsible for keeping all the legal documents, such as tax records and trustee declarations, securely and safely on file. Most of these records should be kept for five to ten years. Some other records to keep on file include the written investment strategy, meeting notes from any official meetings with members and any penalties paid by the fund.
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I am a director of a SMSF which has multiple members (all in pension mode) and a corporate trustee. Each year there is a substantial tax refund due to imputed credits. This refund is paid into the bank account nominated on the tax return, but in fairness should be split into the bank accounts of the members responsible. Am i able to transfer funds to the various members accounts on the basis of imputed credits earned?
Hi Dennis,
We’re unable to give personal advice or taxation advice due to our licence being general in nature. We’d recommend you reach out to your financial planner or accountant for advice. Best of luck!