Corporate or individual trustees: An SMSF conundrum [CPD Quiz]

27 July 2018

Fabian Bussoletti

Fabian has more than 20 years’ experience in the financial services industry. Since 2000, Fabian has been one of AMP’s technical experts, supporting financial advisers to keep up-to-date with changing regulations and requirements.

An examination of the advantages and disadvantages of establishing a SMSF with a corporate trustee structure or individual trustee structure.

It is generally accepted that a self-managed superannuation fund (SMSF) must typically be established with either a corporate trustee structure (where all members are directors of the corporate trustee) or with individual trustees (where all the members are also individual trustees of the fund).

In many cases, the decision to use individual trustees instead of a corporate trustee comes down to the perception that SMSFs with an individual trustee structure are simpler and cheaper. However, while this may be true upon establishing an SMSF, in the long-term, the benefits of registering a corporate trustee are likely to outweigh any short-term savings.

So, let’s take a look at some advantages and disadvantages.

Single member SMSFs

The general requirement for a super fund to be an SMSF is that, among other things, all members of the fund must be individual trustees, or where the fund has a corporate trustee structure, all members are directors of the corporate trustee.

However, if we consider a SMSF with only one member, this requirement is slightly different.

That is, a super fund with only one member is a SMSF if, and only if, it satisfies the following conditions:

  • if the trustee of the fund is a body corporate:
    • the member is the sole director of the body corporate; or
    • the member is one of only two directors of the body corporate, and the member and the other director are relatives; or
    • the member is one of only two directors of the body corporate, and the member is not an employee of the other director.
  • if the trustees of the fund are individuals:
    • the member is one of only two trustees, of whom one is the member and the other is a relative of the member; or
    • the member is one of only two trustees, and the member is not an employee of the other trustee.

Example 1: Single-member fund

Terry wishes to establish a SMSF where he will be the only member – he is looking for greater control over his superannuation assets.

If he chooses to have an individual trustee structure, he will need to identify and appoint another person to act as a trustee alongside him. As a result, he will essentially be sharing the decision-making, as well as the risks associated with being an individual trustee, with another person.

On the other hand, if Terry establishes his SMSF under a corporate trustee structure, he could simply appoint himself as the sole director of the corporate trustee.

This option provides full control over the operations and investments of his SMSF and will not expose others to the potential risks associated with being a fund trustee.

Estate planning considerations

According to the ATO’s Self-managed super funds: A statistical overview 2015–16 report, the most common type of SMSF is one which has two members (70 per cent).

At face value, where a two-member fund has individual trustees, the death of one member would cause such a fund to fail the definition of an SMSF. That’s because the fund will be left with a single-member but only one individual trustee (see earlier discussion on single-member funds).

Fortunately, the SIS Act provides some flexibility for the fund’s trustee arrangements to be re-structured, within certain timeframes, to ensure the fund satisfies the SMSF definition under these circumstances.

However, notwithstanding this flexibility, where a fund has individual trustees, a new trustee will inevitably need to be appointed to operate alongside the surviving trustee (or a corporate trustee will need to be established and appointed) following the death of a member.

On the other hand, where a corporate trustee is already in place, the surviving member could simply continue as the sole surviving director. That is, the existing trustee structure remains intact and undisturbed.

Having a corporate trustee may also enable greater options for control following the death of a member. For example, under an individual trustee structure, the surviving individual trustee(s) will typically be the one(s) to make decisions on dealing with death benefits and potentially the appointment of any new trustee(s).

Whereas when a corporate trustee is in place, it is the company’s shareholders who will typically appoint and remove a director. Therefore, by bequeathing the shares in the trustee company to a specific person(s) (through the deceased member’s Will), there is a greater likelihood of a more appropriate person being appointed as a director to subsequently make decisions with respect to death benefits and/or other relevant fund decisions.

In addition to the above mentioned simplicity, a corporate trustee structure also provides potentially significant administrative benefits, which is discussed later.

Example 2: Estate planning

Bob and Tina are members and individual trustees of a SMSF. Bob dies, leaving Tina as the sole remaining member and individual trustee of the fund.

In order for the fund to remain compliant, an individual trustee will need to be appointed to replace Bob in due course, impacting on the control of the fund and potentially exposing the new trustee to additional risks.

Further, from an administrative perspective, the ownership of the fund’s assets will need to be changed to reflect the newly introduced trustee (discussed later).

Alternatively, at this time, Tina could choose to establish (and appoint) a new corporate trustee where she would act as the sole director.

In comparison, had Bob and Tina established the fund with a corporate trustee, Tina could simply continue as the sole director of the corporate trustee – avoiding the need to appoint a new trustee or director, and without the need to change the names in which the fund’s assets are held.

Administration considerations

Given the requirement that under an individual trustee structure all members of a SMSF must also be individual trustees, naturally, when a new member joins a fund they also need to be appointed as a new (additional) trustee of the fund. Of course, the opposite also applies when a member leaves the fund, i.e. they need to be removed as a trustee.

The task of adding (or removing) an individual trustee may be more tedious than the appointment (or removal) of a director where a corporate trustee structure is in place. That’s because, when a trustee is appointed or removed, the ownership of all the fund’s assets must also be changed to reflect the new trustee structure. Depending on the number and type of investments the fund holds, this process can be time-consuming and potentially costly.

Under a corporate trustee structure, the ownership of fund assets remains unchanged following the admission or removal of a fund member. It is merely a change of the company’s directors that will need to take place.

Separation of assets

Another advantage of a corporate trustee is the ability to better separate superannuation assets from assets that are held by the individual trustee(s) personally. This is particularly important as SIS Regulation 4.09A requires that:

A trustee of a regulated superannuation fund that is a self-managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:

(a) that are held by the trustee personally; or

(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund.

When using a corporate trustee, meeting this requirement is simplified, as the fund assets are owned by a corporate entity, which is dedicated to acting as the trustee of the fund – as opposed to being owned by individuals (albeit in their capacity as fund trustees).

The result of this is that ownership of fund assets is much clearer, and the risks of assets being intermingled is significantly reduced.

Indeed, depending on the nature of the asset(s) in question, clearly stipulating that an individual owns an asset in their capacity as a fund trustee, may not always be possible – which may necessitate additional legal documentation.

Further, holding assets under a corporate trustee structure, as opposed to using individual ownership, helps to eliminate the possibility that fund assets will inadvertently be caught up in any actions (e.g. bankruptcy proceedings) that may be brought against the individuals down the track.

Administrative penalties

Where an SMSF breaches superannuation laws, the ATO has a broad range of penalty powers at its disposal. Perhaps of most significance in the context of this article is the ability of the ATO to issue administrative penalties (i.e. monetary fines) to fund trustees who breach specified superannuation laws.

These administrative penalties range in value from $1,050 to $12,600, broadly based on the severity of the breach.

Further, they must be paid personally by the fund trustee(s) (or directors of a corporate trustee) and cannot be reimbursed or paid from fund assets.

Importantly, the way in which these penalties are applied differs based on whether the fund has an individual or corporate trustee structure in place.

Where the fund has an individual trustee structure, each trustee is personally liable for paying any administrative penalty that is imposed. For example, if a fund has two members (who are individual trustees) and the fund breaches, say, the borrowing rules, each member would personally be required to pay a $12,600 penalty – a total of $25,200.

On the other hand, where the fund has a corporate trustee, the directors of the corporate entity are jointly and severally liable to the penalty. So, if we now assume the same two-member SMSF instead had a corporate trustee, the same breach of the borrowing rules results in the two directors essentially sharing the $12,600 penalty – i.e. they now only pay $6,300 each.

Therefore, if a breach of the superannuation rules occurs and an administrative penalty is issued, then a corporate trustee will reduce the personal impact on the members of that fund.

Trustee protection

Another argument in favour of having a corporate trustee instead of individual trustees, relates to trustee protection.

Individuals acting as trustees of a SMSF are potentially personally liable for any action taken against the fund. Therefore, should action be taken against the fund and the claims exceed the fund’s assets, the individual trustees’ assets held in their personal names may be put at risk.

On the other hand, a corporate trustee may provide individuals associated with the fund with a greater level of comfort, knowing that a liability resulting from a similar action will typically be limited to the company assets – with the director’s personal assets less likely to be exposed.

Cost and regulatory burden

Adopting an individual trustee structure may provide some regulatory, compliance, and upfront cost benefits. That is, a SMSF with individual trustees is likely to:

  • be easier and cheaper to set up (as the establishment of a separate company is not required);
  • incur reduced ongoing costs (in that there are no ASIC fees); and
  • be simpler to operate, in the sense that it is not required to comply with ASIC rules and additional administrative procedures associated with the running of a corporate entity.

However, any discussion of the upfront cost and complexity benefits of choosing an individual trustee structure must also consider the potential downstream costs and complications that may arise – many of which have already been highlighted throughout this article.


Regardless of whether a super fund chooses a corporate or individual trustee structure, the responsibilities of the individuals involved are essentially the same.

That is, in each case, the trustees/directors must ensure that their fund abides by the various SIS Act requirements, in accordance with the governing rules of the fund, while conducting themselves in an ethical manner.

Although there are numerous benefits to having a corporate trustee, the choice is ultimately a matter of preference and individual circumstances should be considered.

Appendix: Individual v Corporate Trustee

When establishing a SMSF, the trustee structure needs to be decided upon, i.e. whether to appoint individual trustees or a corporate trustee. It is important that this be addressed from the outset, as it can be very cumbersome to replace individual trustees with a corporate trustee. Table 1 seeks to highlight some of the key considerations.

Table 1: Individual v Corporate Trustee

Individual trustees Corporate trustee
Single member funds

Must have two individuals as trustees (one who is not a member).

Single member funds

Corporate trustee (company) can operate with sole director.

Change of member(s)

New member(s) must be appointed as trustee(s).

Leaving member(s) must resign as trustee(s).

Appointment/resignation must be in accordance with the fund’s trust deed and SIS Act requirements.

Requires change in legal ownership of fund assets to reflect new trustee(s).

o A potentially time consuming and costly process.

Change of member(s)

New member(s) must be appointed as director(s).

Leaving member(s) must resign as director(s).

Appointment/resignation must be in accordance with the company constitution and SIS Act requirements.

No change to fund trustee (company remains trustee).

No change in legal ownership of fund assets.

o Assets remain held in name of company.

Separation of assets

Fund must be recognised as having clear title to asset(s).

Requires fund asset(s) to be held in name of all trustees ‘as trustee for’ name of the SMSF.

o Not always easy/possible.

Separation of assets

Asset ownership much clearer (particularly when sole purpose trustee company is used).

Where company (i.e. corporate trustee) is acting in a number of capacities, it must keep a clear division between assets of fund and assets of company.

Trustee liability

No limit on potential liability.

Individual trustees hold assets of fund in own names as trustee for SMSF and may be liable for any legal challenge against fund.

Potentially exposes trustees’ personal assets.

Trustee liability

Limited liability.

Corporate trustee (i.e. company) holds assets in name of company, providing a level of protection for personal assets of directors.

Establishment costs

No additional establishment costs (as establishment of company not required).

Establishment costs

No additional costs if using an existing company.

If setting up new company, additional establishment costs and ASIC fee(s).


Individual trustees Corporate trustee
Estate planning

Following the death of a member, deceased trustee will need to be removed.

If fund had two members, replacement trustee will need to be appointed (non-member).

Outcome – Same issues as above in terms of:

o ‘Single member funds’.

o ‘Change of member(s)’.

Estate planning

No administrative disruption on death of member(s). Company continues as fund trustee.

If fund had two members, a replacement director is typically not required.

Ability to pass control of SMSF to beneficiaries by bequeathing shares in the company.

SMSF borrowing

May not be acceptable to banks when seeking to establish a LRBA.

SMSF borrowing

Typically preferred by banks when seeking to establish a LRBA.

Administrative penalties

Typically higher total administrative penalties for specified breaches.

Administrative penalties

Typically lower total administrative penalties for specified breaches.




Take the quiz here

1. Greg is the only member of a SMSF. Which of the following trustee arrangements are acceptable?

  1. The fund has a corporate trustee of which Greg is the sole director.
  2. The fund has a corporate trustee of which Greg and his brother are the only directors.
  3. The fund has individual trustees of which Greg is one trustee and the other trustee is not related to Greg and does not employ Greg.
  4. Any of the above.

2. The advantages of using a corporate trustee compared to an individual trustee include:

  1. The process of adding a new trustee director is simpler.
  2. The set up cost and maintenance fees are significantly less.
  3. A corporate trustee provides some protection for personal assets.
  4. Both (a) and (c).

3. From an estate planning perspective, who will usually make a decision in terms of how and to whom death benefits are paid from a SMSF?

  1. The directors of the corporate trustee.
  2. The surviving individual trustee(s).
  3. The executor of the estate.
  4. (a) and (b) only.

4. Under the new administrative penalty regime, which of the following statements is true?

  1. Penalties can be paid/reimbursed out of fund assets.
  2. Regardless of the fund’s trustee structure, the total amount payable by a trustee/director will be the same.
  3. Individual trustees will each have to pay the full penalty, whereas under a corporate trustee structure, the penalty is essentially shared among the directors.
  4. None of the above.

5. Following the death of a member, where a fund has a corporate trustee, the legal ownership of fund assets will need to be changed.

  1. True.
  2. False.


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