For years, the debate has raged between advisors and their clients. Should we go to the trouble and expense of getting a corporate trustee for our self-managed superannuation fund (SMSF), or should we just be individual trustees? After all, we as the members are still all involved in any decision making either way, so what’s the real difference – other than the extra costs and hassle?
It’s not a bad question. Under section 17A of the Superannuation Industry (Supervision) Act 1993 (SISA), all members of a SMSF have to either be trustees personally, or alternatively if there is a corporate trustee then they must be the directors of the company. This ensures that every member has a say in the management and investment of their own super.
However, it also means that every member is personally responsible to ensure that their SMSF complies with all the legal requirements for its complying (and hence tax concessional) status to be retained. And if things go wrong, it also means that each and every member will personally suffer the consequences of getting it wrong.
This is where having a corporate trustee of your SMSF comes into its own – limitation of personal liability. Remember that a company is a separate legal entity from its directors and shareholders, and this carries over into the SMSF context. That separate entity status brings with it three clear advantages over having individual members being the trustees of their SMSF:
- There is no need to change the trustee if a member dies or leaves the SMSF for any reason – all you need to do is remove or retire the outgoing director. If it was a two-member fund becoming a single member fund, the remaining member can become the sole director (assuming the company constitution allows for this – if not, it can usually be amended accordingly). This is to be contrasted with a fund with individual trustees, where a sole member would need to appoint a second person as co-trustee to satisfy the definition of “self-managed superannuation fund” under section 17A(2)(b) of SISA. There is also no need to advise banks or share registries of a change in trustee, since only the directors of the corporate trustee have changed rather than the trustee itself.
- The personal liability of directors of a corporate trustee is limited to the assets held within the SMSF, assuming that the rules of the fund indemnify the trustee against liabilities incurred in the exercise of its trustee duties. In contrast, individual trustees (being the legal persons who transact on behalf of the SMSF) will be directly liable for any liabilities incurred as trustees, and whilst they may have an indemnity from the fund if the assets are insufficient, they may be personally responsible for the excess.
- Part 20 of SISA sets out the ‘speeding tickets’ regime which applies to impose administrative and other penalties on SMSF trustees for breaches of the SIS laws – including fines of up to $21,840. Where the SMSF trustee is a body corporate, its directors at the time it becomes liable to the penalty will be jointly and severally liable to pay the amount of the penalty. However, where there are individual trustees, the fine is personally imposed on each and every trustee – so if there are four individual trustees, then the total fines may amount to $87,360! Or, $131,040 if there are six individual trustees. Moreover, these fines cannot be paid or reimbursed out of the fund.
These amounts are the maximum fines which can be imposed as of 1 July 2026. Actual fines imposed depend on which section has been infringed and whether there are any mitigating circumstances. Administrative penalties can be imposed on directors of corporate trustees if the director breaches a SIS provision which directly imposes an obligation on the director (rather than on a trustee) – such as s104A (obligation to sign statement recognising a trustees obligations and responsibilities).
So if you are an individual trustee of your SMSF, the message is clear – make the switch to a corporate trustee as soon as possible. The inconvenience, initial investment and ongoing costs of doing so may pale into insignificance compared to the future inconvenience and costs of staying as you are in the name of ‘keeping it simple’.
Michael Hallinan is a superannuation and financial services lawyer with over 25 years legal and superannuation experience gained in both private practice and corporate counsel positions. His work in the superannuation field in various capacities has given him an extensive understanding of the specialised field of superannuation and the superannuation industry.
He is Special Counsel – Superannuation, for SUPERCentral, an independent online platform provider of SMSFs, advice, legal documentation and wealth management services to accounting and financial planning firms throughout Australia.
Please note that these comments are for your consideration only and are provided to assist you in deciding whether to proceed to obtain a formal opinion on the issue. These comments cannot be relied upon by either you or any of your clients until and unless we issue that formal opinion.