Key Considerations when Establishing a Self-Managed Superannuation Fund (SMSF)

Self-Managed Superannuation Funds offer a number of key advantages for investors over industry, public offer and corporate superannuation funds. So much so that many of the investment strategies we recommend at United Global Capital (UGC) simply can’t be implemented within any other superannuation structure.

Advantages of SMSFs include:

Trustees have unlimited discretion to invest in assets or instruments of their choosing, subject to certain rules, and these assets or instruments include:

  • Listed and unlisted securities
  • Listed and unlisted derivatives
  • Listed and unlisted property trusts
  • Direct property
  • Commodities
  • Collectibles
  • Foreign currencies, and your typical
  • Managed fund

Other advantages include:

  • Greater control over buying and selling decisions of investments and management of tax liabilities.
  • Potential to reduce administration costs. Subject to being charged a fixed rate, your admin costs will reduce as a percentage of your investment assets over time. (UGC’s administrators charge a fixed rate fee).
  • Opportunity to leverage into direct property, direct shares and other asset classes.
  • Opportunity to better manage risk, increase returns and manage your capital gains tax liabilities through the use of derivatives, which are generally not available within other structures of superannuation.
  • Increased flexibility surrounding estate planning matters.
  • Ability to invest in Australian and foreign direct investments, such as US listed shares or foreign real estate.

The establishment of a Self-Managed Superannuation Fund does have some additional considerations as well. They include:

  • Whether to establish a fund with a Corporate Trustee or Individual Trustees. Issues include cost, flexibility, control, estate planning?
  • Who to use to draft the trust deed and who to use to review the trust deed upon changes in legislation, taxation and regulation?
  • Who will administer the fund i.e. prepare financial statements, member statements, compliance, payment of expenses etc?
  • Who will prepare tax returns?
  • Who will audit the fund?
  • Time availability to handle all functions involved with running the fund?
  • How you will make your investment decisions and how you will track investment returns.

 Choosing between a Corporate Trustee and Non-Corporate Trustees

There are two types of regulated self-managed superannuation funds. The most common type is usually called a “non-corporate trustee SMSF”, and the other one a “corporate trustee SMSF”. Non-corporate trustee SMSFs can be a single or multiple member fund as can corporate trustee SMSFs.

A non-corporate trustee single member fund has only one member. The member is also the trustee of the fund, and the fund must have another individual as a trustee only. The second trustee cannot be a member of the fund. He or she can be a relative of the member, or alternatively, can be any other person provided the member is not an employee of that person.

A non-corporate trustee multiple member fund has more than one, and up to four members. Each trustee of the fund is also the member of the fund. Members of the fund cannot be employees of another member, unless they are related.

A corporate trustee single member fund has only one member and a company as a trustee. The member:

  • Must be the sole director of that company, or
  • Must be related to the other director of the trustee company and they have to be the only two directors of that company.

A corporate trustee multiple member fund has more than one, and up to four members, and a company as the trustee of the fund. Each director of the company is a member of the fund.

Benefits of a Corporate Trustee

At UGC, we almost always recommend that self-managed superannuation funds be established with a corporate trustee as this provides a number of advantages over individual trustees. From an estate planning perspective, the voting power of the directors is determined by the constitution and in many instances would be by simple majority. Upon death, the director’s share of the company can pass to the deceased’s intended beneficiaries thus control over the SMSF is not left in the hands of the remaining trustee. This is particularly important in situations where the trustees have been previously married or have specific or unconventional wishes upon their death. In such circumstance it may not be in the best interests of the beneficiaries to lose control over the fund and its assets.

From an administrative perspective, as the assets are required to be held in the name of the trustee of the fund, if an individual trustee changes, most likely following death, then the name in which the assets are held will need to be changed. This can lead to unnecessary costs and time wasted having to change the name in which the assets are held.

Furthermore, if an individual trustee is subject to litigation (e.g. a personal liability action in relation to a property of the fund), the trustees are joint and severally liable and therefore their personal assets may be exposed. However, with a corporate trustee, any action will be limited to the assets of the company, not the company directors.

Advantages of a Corporate Trustee

Outlined below are some of the advantages of a corporate trustee:

table 1 (2)

If you have been considering a SMSF or wish to learn more about what options are available to you, please contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email [email protected].

The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment, you should first consider that past performance is not a reliable indicator of future performance.

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