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Requirements for SMSF trustees

An SMSF is a legal entity that must abide by the requirements of the Superannuation Industry Supervision (SIS) Act, and comply with tax law. All SMSFs are regulated by the Australian Taxation Office (ATO). While this can sound intimidating, most SMSFs have two members, invest most of their portfolio in cash and Australian shares, and easily meet their compliance obligations. If your scenario is a little bit out of the ordinary, it is always best to seek advice from an SMSF specialist before proceeding.

Who can be an SMSF member?

Essentially anyone can be a member of an SMSF provided they:

  • are not an employee of another member unless they are related to them, and
  • are not a 'disqualified person'.

A disqualified person is someone who:

  • is disqualified by the Australian Taxation Office or the Australian Prudential Regulation Authority from acting as trustee of a superannuation fund
  • is an undischarged bankrupt, or
  • has been convicted of an offence for dishonest conduct arising out of a law of the Commonwealth, State, Territory or foreign government, such as fraud.

An SMSF can have up to four members; most funds have two members. Common examples are a couple (eg a husband and wife or same sex couple) and two people who are in business together.

The trustee options and eligibility rules

Each member needs to be either an 'individual trustee' of the fund or a director of a trustee company, which is known as a 'corporate trustee'.

Who can be an individual trustee?

You can be an individual trustee if you are a member of the fund and so long as you are not a 'disqualified person' and are not:

  • a minor (ie a child under 18 years of age) where you will need a parent (who may also be a member of the fund), a guardian or a Legal Personal Representative to act as trustee on your behalf, or
  • a person with a mental or physical incapacity which prevents you from acting as trustee, where you will need another person who holds an 'enduring power of attorney' to act as trustee for you.

Which companies can be a corporate trustee?

Most companies can be used as a corporate trustee provided:

  • a director, executive, secretary or other 'responsible officer' is not a 'disqualified person'
  • all directors are members,
  • a receiver, official manager or provisional liquidator has not been appointed, or
  • action has not commenced to wind-up the company.

You could use an existing company, however, it's worth thinking about having a separate corporate trustee for your SMSF. This helps keep your SMSF's assets separate from your other assets, as required by law.

Also, because directors of the corporate trustee must generally also be members of the SMSF (with some exceptions), another existing company may have directors who will not be SMSF members.

What are the benefits of having a corporate trustee?

A corporate trustee can offer a number of benefits including:

  • Less cost and effort when membership changes. With individual trustees, the title to the fund's assets needs to be transferred into the new trustees' names when a member joins or leaves the fund. Conversely, with a corporate trustee, the company holds legal title to all the fund's assets, so no transfer of names is required when members are added or removed.
  • Greater protection from litigation. If individual trustees are involved in a legal dispute, their personal assets may be exposed. With a corporate trustee, any action will generally be limited to the assets of the company, not the company directors.
  • Greater control for single members. If a person who is the single member of an SMSF wants to be an individual trustee, another person must be appointed as a second individual trustee. However, a sole member can be the only director of a corporate trustee and have total control of the fund.
  • More longevity. As a company an SMSF can continue indefinitely, a corporate trustee can provide greater certainty over the control of the fund if a member dies or becomes incapacitated.

How much can it cost to establish a corporate trustee?

The cost of establishing and running a corporate trustee may not be significant if a suitable company is already available. However, if a new company is established, the additional costs can include:

  • an upfront establishment and registration fee, which can range from around $800 to $2,000 (including the cost of registering the corporate entity with ASIC)
  • an annual review fee, which is approximately $41, and
  • annual accounting costs, which should be minimal unless the company undertakes other activities.

Find out more about our SMSF Establishment Service, including corporate trustee establishment, from Heffron SMSF Solutions.

You should consider seeking professional advice or guidance when deciding on the best superannuation solution for you. It is recommended that you also seek advice from a registered tax agent to determine the tax implications for you. NAB is not a registered tax agent and the tax information contained on this website should not be relied upon to determine your personal tax obligations.

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