Tips and traps appointing a corporate trustee for an SMSF

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Know which way is best when appointing a trustee.

There are very few SMSF specialists who don’t think that having a company as the trustee of the fund is preferable to having the members act as trustees individually.

But once you’ve decided to take the plunge and change your trustee to a company it is vitally important that the change be done properly.

Trustees are entrusted with legal ownership of all assets of the fund and their resignation and/or appointment should not be taken lightly. We frequently see cases where clients attempted to, but failed to, effectively change the trustee of a SMSF.

This can not only cost you further legal fees in order to rectify the issue later on, but also may be subject to ATO penalties and adverse tax consequences.

Unfortunately, there is no rule of thumb when it comes to appointing a new corporate trustee.

Depending on the circumstances, it may not be sufficient to establish a company and prepare trustees’ minutes to state that the company is now the new trustee.

The current trust deed of the fund should be reviewed to see if it specifies any requirement on how to resign the current trustee(s) and appoint a new trustee. It may require that the change only be effected by a formal deed and/or it may require a third party to consent to the change. If the current deed is silent on the issue, the relevant State’s or Territory’s legislation needs to be relied on.

Once the legal requirements are confirmed, a company needs to be established, bearing in mind that a special purpose company can access the benefit of a discounted annual ASIC review fee ($48 instead of $254 as at the date of this article).

Also, it is important to appoint the members of the fund as directors (and secretaries) for the company and to otherwise ensure the fund complies with the superannuation law, most particularly the Superannuation Industry (Supervision) Act (1993).

Once the company is set up, the required legal instrument should be carefully drafted and executed to ensure effective change of trustee. Note that the change requires effective resignation (or retirement) of current trustee(s) as well as effective appointment of the new corporate trustee.

Following the execution of the documents, the change must be notified to the ATO within the prescribed time frame, which is within 28 days of the change.

Each director of the new corporate trustee must also sign a trustee/director consent form as well as the ATO Trustee declaration form. The declaration form must be signed within 21 days of the directors being appointed and the form must be kept on the register of the fund.

Also, all assets of the fund must be transferred to the new trustee as required by the ATO. If the fund has real estate, there will be further procedural and legal requirements such as applying for exemption/concession of transfer duty to the relevant State’s revenue office (if required by the relevant State’s or Territory’s duties law) and applying to land titles office to have the property transferred to the new corporate trustee.

By Jeff Song, Solicitor

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