Statistics provided by the ATO indicate that 73% of all SMSFs in Australia have individual trustees and 90% of newly established SMSFs are established with individual trustees.
However, the benefits of appointing a company as trustee of an SMSF easily justify the initial cost of acquiring the corporate trustee and the annual ASIC fee.
Appointing a corporation to act as trustee of your SMSF has advantages in the following areas:
-Ease with which additional members/directors can be appointed and removed;
-The SMSF is often in a better position to borrow money for the acquisition of investment assets (limited recourse borrowing arrangement);
-Greater privacy and greater convenience; and
-Reduction in personal risk that comes with being a trustee who is a legal natural person.
While being a corporate trustee does not make you risk immune it is something you need to consider when making the decision for or against.
In the case of Shail Superannuation Fund v Commissioner of Taxation  the individual trustees, Mr and Mrs Shail, held assets exceeding $3.46 million within their SMSF. Mr and Mrs Shail were both individual trustees and members of this fund. After encounter some relationship difficulties Mr Shail withdrew the whole $3.46 million of SMSF assets and left the country.
As Mr and Mrs Shail had not yet satisfied a condition of release for the fund assets, the Australian Taxation Office issued a notice of non-compliance and assessed the trustees of the fund for $1.58 million in tax payable, plus penalties of $1.47 million. As a co-trustee, Mrs Shail was now liable for the liabilities incurred in this process.
Mrs Shail was now left with a debt in excess of $3 million for which she was personally liable to pay and is likely to face bankruptcy proceedings in the future, resulting in the loss of any property and assets that she owns in Australia, including any family home.
This case above clearly shows the principle that co-trustees are jointly and severally personally liable for the liabilities of an SMSF.
This can be potentially disastrous to individual trustees, particularly where:
-They own valuable assets outside their SMSF, in their personal names, including the family home;
-The SMSF owns 'real' property and an accident occurs on that property where legal action follows; and
-The regulatory body fines or assesses other taxes or liabilities.
Whilst the use of a corporate trustee cannot extinguish all possible liability situations the appointment of a corporate trustee can go a long way towards protecting the personal assets of a trustee.
For any one of the reasons above the cost of registering a company far outweighs the savings which might be made from being an individual trustee. Additionally the convenience by which changes in membership can be achieved and the personal liability protection which results by using a corporate trustee seems to weigh in its favour.
Appointing a corporate trustee ensures that in the event of a liability arising, the corporate trustee bears that liability instead of the individual trustees. This is something members should consider when weighing up their options. When establishing an SMSF and before making any decisions it is extremely important that you make an appointment and get advice from a professional so that you get it right the first time. I am happy to answer any queries you may have and can be contacted on the supplied details.