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What is an SMSF Trustee and how do they work?

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Before you can take the first step to invest in property using a SMSF home loan, there’s typically two options to set up the structure of your SMSF - an individual trustee structure, or a corporate trustee structure. Let’s take a look at how each works below to help inform your decision when choosing the structure of your SMSF.

What is a SMSF trustee?

A SMSF can have up to six members, all of whom must be a trustee. This means that each member of the fund is equally responsible for fund decisions and the fund’s compliance with relevant laws. This differs from an industry or retail super fund, whereby a board of trustees make decisions on behalf of the fund members. Put simply, in an SMSF, all members are trustees.

There are two SMSF trustee structures that we will have a look at in more depth below. One structure works with the trustees in an individual capacity, whilst the other structure appoints a company as the trustee.

What is an individual SMSF trustee?

Choosing to opt for an SMSF structured with individual trustees means you can potentially have two to six members in the fund. Each member needs to be a trustee, and each trustee needs to be a member of your fund. The only exception to this rule lies with an SMSF structured to have a single member, whereby the fund must have two trustees, yet only one is required to be a member.

According to regulations outlined by the Australian Taxation Office (ATO), a member cannot be an employee of another member unless they are related. Further according to the ATO, some state and territory laws restrict the number of trustees to less than six.

As a SMSF is a type of trust, it is important that SMSF customers seek the appropriate legal advice to help understand if their SMSF is impacted by these restrictions.

What is a corporate SMSF trustee?

Rather than each individual member being a trustee, with a corporate trustee structure, each member must act as a director of the corporate trustee. It’s important to note, only members of the SMSF may be directors of the corporate trustee.

Establishing a corporate trustee SMSF works a little differently to individual SMSF trustees. There are fees and regulatory requirements involved in registering and maintaining registration of a company.

According to the ATO, directors of corporate trustees need to have a director identification number. A director identification number is a unique identifier utilised by the ATO and ASIC to help prevent the use of false or fraudulent director identities.

How many trustees can a SMSF have?

As mentioned above, whether your SMSF be structured with an individual or corporate trustee, each fund can have between two to six trustees.

According to rules outlined by the ATO, certain people cannot act as an individual trustee or a director of a corporate trustee. These include:

  • Individuals who have been convicted of an offence involving dishonest conduct.
  • Those previously subject to a civil penalty under the superannuation legislation.
  • Those insolvent or under administration (an undischarged bankrupt).
  • Individuals who have been previously disqualified from acting as a trustee of a superannuation fund by the ATO.

Can an SMSF change from an individual to corporate trustee?

Just like anything in life, when it comes to the structure of your SMSF, circumstances have the ability to change. This can result in you looking to change from an individual to corporate trustee or vice versa. For those looking to change SMSF structure, there are specific processes that must be completed - legal changes and investment name changes. These are outlined below.

Legal changes

Transitioning the SMSF trustee structure from individuals to corporate or vice versa must be completed with the oversight of a lawyer or solicitor. It involves the detailed review of the clauses or rules of the SMSF trust deed to determine how a new company trustee must be appointed.

When transitioning to a corporate structure, the corporate trustee needs to be registered with ASIC and all members of the SMSF have to be directors of the company. A legal document is required to be prepared to appoint the newly formed company as a new trustee of the SMSF as well as the removal of the existing individual trustees. This document will need to be correctly executed by all members of the SMSF for the change of trustee to be valid.

Further, the existing SMSF trust deed is required to be amended after the appointment of a new company trustee, to ensure the SMSF is up to date. All legal changes must be in accordance with ATO and ASIC legislation, meaning records must be updated within 28 days of the changes occurring.

Investment name changes

In similar fashion to legal changes, changes to the SMSF trustee structure will require any accounts and investments owned by the SMSF to be recorded in the new name of the trustee of the fund.

If your looking to take advantage of a better rate for your SMSF property investment, check out our competitive range of SMSF home loan options for refinancers or chat to one of our lending specialists today.

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About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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