Managing your retirement savings
According to the latest ATO data*, at 30 June 2021, there were over 598,000 self-managed super funds (SMSFs) collectively holding $822 billion in super assets—and there were over 1.115 million members of SMSFs.
While the above figures suggest an SMSF is a popular choice for some, it may not be appropriate for everyone in terms of managing retirement savings. For example, running an SMSF can involve considerable time and responsibility, and penalties and fines can apply if rules or administrative requirements aren’t adhered to.
For anyone considering an SMSF, it’s important to consider, among other things, what’s involved in setting up and running one—seeking qualified professional advice in this area can be a worthwhile consideration here.
In terms of setting up an SMSF, there are a number of steps involved—several of which centre on trusteeship:
- Deciding who will be a member and checking they can act as a trustee or director of a corporate trustee.
- Choosing the trustee structure type (individuals or corporate) and then appointing trustees.
According to ATO data*, at 30 June 2021, SMSFs with two members accounted for 69% of SMSFs. And, at 30 June 2021, 65% of all SMSFs had a corporate trustee structure—as opposed to an individual trustee structure.
Below is a brief and general overview of SMSF trustee responsibilities, eligibility, and structure types. Please consider seeking qualified professional advice for further consideration and information.
SMSF trustee responsibilities, eligibility, and structure types
SMSF trustee responsibilities
A trustee’s responsibility centres on ensuring the SMSF complies with all laws, which includes the duty to:
- act in the best financial interests of all fund members when they make decisions
- manage the fund separately from their own personal affairs
- ensure the fund meets the sole-purpose test
- ensure the money in the fund is only accessed where the law allows it
- know, understand, and complete their responsibilities and obligations
- ensure the fund has prepared financial statements—audited every year
- lodge the annual fund income tax return and pay the annual supervisory levy.
Please note: All trustees are equally responsible for managing the fund and making decisions—even if they aren’t actively involved in the decision-making process. Trustees can employ the services of professionals to help them, however, the full responsibility for decisions, and the management of the fund, remains with the trustees.
In general, to be a trustee of an SMSF, an individual must be over age 18 and not under a legal disability (eg mental incapacity) or considered a disqualified person. An individual is a disqualified person if they, or any of the responsible officers of the corporate trustee:
- have ever been convicted of an offence involving dishonesty
- have ever been subject to a civil penalty under superannuation legislation
- are an insolvent under administration or an undischarged bankrupt
- have been disqualified by a court or regulator (eg the ATO or APRA).
Also, as central management and control of the fund must remain in Australia, if a member is moving overseas, they may need to leave the fund or cease being an active member and appoint a replacement trustee using an enduring power of attorney.
Corporate trustee structure
When compared to an individual trustee structure, a corporate trustee structure is more expensive to establish and maintain. The company established as the corporate trustee of an SMSF will require a company constitution and certificate of registration, as well as pay an annual re-registration. Furthermore, the assets of the SMSF need to be registered in the name of the company that has been set up to act as corporate trustee (ie the corporate trustee ‘as trustee for’ the SMSF).
Please note: For funds with more than one member, each member must be a director of the corporate trustee, and each director of the corporate trustee must be a member of the fund. Whereas, for single-member funds, the corporate trustee company can have one or two directors, and the fund member must be the sole director or one of the two directors.
In broad terms, a corporate trustee structure may be appropriate if:
- the members are likely to change. For example, an SMSF set up with a corporate trustee structure can add a member (eg a spouse or child) or remove a member (eg if a member dies or can no longer act as trustee) more easily than an individual trustee structure
- it’s a single member fund. For example, an SMSF set up with a corporate trustee can have a single member and director. This also means that if one member of a two-member fund passes away, the fund may continue to satisfy the trustee structure rules
- an individual is intending to borrow to purchase property. For example, some financial institutions may only lend to an SMSF if a corporate trustee structure is in place
- peace of mind is required around personal liability. For example, as a director of a corporate trustee, personal liability is generally limited to the assets held within the SMSF. Whereas an individual trustee structure doesn’t provide this security, and members’ personal assets may be subject to liability claims.
Individual trustee structure
When compared to a corporate trustee structure, an individual trustee structure is typically simpler as it isn’t necessary to establish a company. It’s usually cheaper to establish an SMSF with an individual trustee, however, these upfront savings may be outweighed if changes are required in the future—it can be costly to remove a member or change the trustee structure. Furthermore, the assets of the SMSF need to be registered in the names of the individual trustees of the SMSF (ie the individual trustees ‘as trustees for’ the SMSF).
Please note: Funds with more than one member require each member of the fund to be a trustee, and each trustee must be a member of the fund. Contrastingly there must be two trustees for single-member funds, and one trustee must be a fund member.
In broad terms, an individual trustee structure may be appropriate if changes to the trustees or members of the fund aren’t envisaged to take place. However, if a breach of fund requirements occurs, the penalties overall may be higher for individual trustees as each can be separately fined for the same breach.
For a discussion about your SMSF, contact Carrick Aland’s award-winning SMSF team at Intuitive Super on 1300 856 064 or visit carrickaland.com.au/smsf/.
*Australian Government, ATO. (2022). Self-managed super funds: A statistical overview 2019-20.
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