Author: Janet Ward

When establishing a SMSF one of the first key decision to be made is whether to have a corporate trustee or individual trustees.  Corporate trustees have many advantages over individual trustees that make managing your SMSF easier in the long run.

SMSFs don’t stay the same forever.  Members might die, new members (e.g. children) might join, the original members might divorce or one or both of the members might be diagnosed with dementia or have an accident that affects their mental capacity and leaves them unable to be a trustee.

When a fund has a company as trustee the change is simple (just some paperwork to lodge) and can be managed by the remaining directors.

Where the trustees are individuals, it’s far harder – the legal names on all of the fund’s investments have to change to the new group of individuals.  Some investments actually have to close as they can’t accommodate a change in name (E.G. bank accounts) and sometimes there are legal processes to go through which delay the changes and in the extreme, may make it difficult for you to access some of your fund’s assets for a time.

A fund with only one member can have a trustee that is a company with a single director. 

But, a single member fund with individual trustees has to have at least two trustees. 

That means that if you want an SMSF on your own and have complete control you must have a corporate trustee.

A fund with five or six members may not be able to have individual trustees in some states. This is because some states only allow up to four people to be trustees of a trust (and remember, a super fund is a special type of trust).

One of the very important legal rules in SMSFs is that the fund’s assets have to be kept completely separate from the members’ own assets.

This is really easy to do and to prove to auditors and the Tax Office when there is a completely separate legal owner – a company trustee.

If the fund owns a property, for example, then just like any other property owner the trustees of the fund can be held liable for accidents on their property.

If the trustee is a company, then your personal liability is generally limited to the assets held in the SMSF.  Assets that you own outside the fund are protected.

That same protection doesn’t apply to SMSFs with individual trustees.

Trustees must formulate, regularly review and implement an investment strategy that has regard to the whole of the circumstances of the fund.

Now is a great time to review your current investment strategy to ensure the SMSFs investments are in line with the investment strategy. Where this is not the case, the strategy must be updated.

Changes in investments, members changing from accumulation to pension and economic changes all can lead to a change of investment strategy.

Companies are considered to have an infinite lifespan, so in the event of the death the fund continues in the event of a member’s death – allowing for the easy payout of a members benefits as a lump sum or death benefit pension.

With individual trustees however, the trustee relationship ceases upon death and timely action is required in order to ensure the trustee/member rules are adhered to.

Individual trustees will work of course, however an appropriate succession plan must have been put in place to mitigate any contingencies. This is on top of the considerable paperwork that is usually associated with administering a person’s estate and obtaining probate of their will.

A company offers greater flexibility for estate planning and avoids extra administrative work and costs at a difficult time.

It is more expensive to have a company as trustee of your SMSF. There is a one off set up cost to establish a company (at time of publishing $1,100) and then the company has to pay an annual fee to ASIC.

It’s worth noting that the annual fee is quite low ($63 for the 2024 year) if the company is set up as a “special purpose” company. This is a type of company that is only allowed to be the trustee of a super fund – it can’t do anything else like run a business, be the trustee of a family trust etc.

If you would like to discuss how to change from individual trustee to corporate trustee please contact us.

As another financial year draws to the end, it is wise for SMSF trustees to check that all is in order prior to 30 June.

Here are eight points to consider before 30 June.

Any planned top up contributions must be received into the SMSF bank account by 30 June.

Should amounts be received by the fund on 1 or 2 July 2024, they are a contribution in respect of the 2025 financial year, and you will lose the ability to claim a tax deduction for the 2024 financial year.

The cap for the 2023/2024 financial year is $27,500.

Individuals aged 67 to 74 years (inclusive) are still required to meet the work test to make personal deductible contributions.

If claiming a tax deduction a “Notice of Intent to Claim a Tax Deduction for personal super contributions” must be completed and submitted to your super fund, and the trustees should acknowledge your request.

Catchup contributions could be utilised this financial year where the member had a total super balance on 30 June 2023 of less than $500,000.  Your accountant will be able to advise how much you have available as a catchup contribution.

Where a member’s total super balance on 30 June 2023 was less than $1,900,000, members are generally entitled to make a non-concessional contribution.

The NCC cap for 2023/2024 is $110,000 p.a and there continues to be no work test requirements (for members aged 67-75).

Members (up to age 75) may be entitled to the non-concessional cap bring forward rules. Up to 30 June 2023 this can be up to $360,000 over 3 years. 

However, proceed with caution here to ensure you are eligible or if your Total Super Balance is between $1,660,000 and $1,900,000:

It is a requirement that the minimum pension amount is paid each financial year.

Your minimum pension will differ each year depending on your age and account balance at 30 June in the prior year. Maintaining the minimum payment standards ensures that the pension does not cease, and pension account earnings are exempt from tax.

Don’t forget that 30 June falls on a Sunday this year so the minimum pension needs to be paid early to ensure that it clears the bank account in time.

Also the 50% reduction in annual pension payments to members allowed since COVID ceased on 30 June 2023, resulting in reverting back to normal rates next year.

Transition to Retirement Income Streams must keep within the minimum calculated pension and the 10% maximum.

These pensions do not enjoy tax exempt earnings until they enter the retirement phase, and they are not subject to the Transfer Balance Cap limits.

If you have a TRIS and you turn 65 during the financial year, your pension will automatically convert to the retirement phase. This means you will no longer be limited to the 10% maximum withdrawal restriction and also income generated from your account balance will become tax free earnings.

Investments held by a superannuation fund must be valued at market value each financial year. This is easy for shares and other listed investments, but property is a bit more difficult, every two years is a good rule of thumb, unless a significant event has occurred that has impacted its value in the interim.

If you have a commercial property that is rented by the members or a related party business it is essential that the SMSF is receiving rent at a commercial rate. No more and no less than commercial rates.

Trustees must formulate, regularly review and implement an investment strategy that has regard to the whole of the circumstances of the fund.

Now is a great time to review your current investment strategy to ensure the SMSFs investments are in line with the investment strategy. Where this is not the case, the strategy must be updated.

Changes in investments, members changing from accumulation to pension and economic changes all can lead to a change of investment strategy.

As part of your annual review, it is wise to ensure members have addressed their estate planning needs, including Wills, Enduring Powers of Attorney and Binding Death Benefit Nominations.

Death benefit nominations can now be made non-lapsing under SIS legislation, so they never expire unless revoked. For members who have had these in place for quite some time consider a review and potential update.

There have been significant changes to superannuation since 2007, which may or may not be expressly provided for in the fund’s deed. It is generally recommended trustees update the fund’s trust deed every 5 years, so it remains up to date and relevant to its members.

An up-to-date deed will provide greater flexibility for members and important strategic opportunities for the fund.