02 Apr How many heads are on your SMSF chopping block?
How many heads are on your SMSF chopping block?
5 benefits of a corporate trustee
Almost 76 per cent of all SMSFs have individual trustees rather than a corporate trustee. That percentage appears to be increasing, with the ATO stating in the three years to 2013, there was a 1 per cent decline in SMSFs registering with a corporate trustee; and approximately 90 per cent of newly registered SMSFs in 2013 had individual trustees.
Yet, there a plenty of strategic advantages to choosing a corporate trustee.
1) Reduced Penalties
Take a corporate trustee with two directors. If the directors fail to ensure that accounts and statements are prepared for their SMSF, the corporate trustee receives a ten-penalty unit fine (currently $1700). Make the same error with an SMSP with individual trustees, and each individual trustee is liable for the ten point penalty.
2) Fewer heads on the chopping block
As the above example illustrates, a company is technically one trustee, no matter the number of individual directors sitting on that corporate body. If you have two, three or four individual trustees, you are exposing each individual to unnecessary risk.
3) Easy To Keep Assets Separate
Having a corporate trustee for your SMSF allows you to ensure clear boundaries. The ATO reports that the ‘separation of assets’ is the third most-commonly reported contravention. The broad rule is that a trustee must keep the SMSF’s money and assets separate from money and assets held by the trustee personally. But if the SMSF had a sole-purpose corporate trustee, the contravention ought not occur because the corporate trustee, as a sole-purpose company, should not have any personal money within it.
4) Improved Planning and Succession
As an entity, a corporate trustee cannot die – offering better continuous succession. If individual trustees change, or one dies, there are administration burden including ownership documents and, if property is involved, trustees need to demonstrate to the revenue office that no duty is payable.
5) Better Protection
As a separate legal entity, corporate trustees offer greater asset protection. If an SMSF is sued, in the case of debt, individual trustees have their personal assets at stake if SMSF funds are insufficient.
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