There are many reasons why using a corporate trustee is better for your self-managed super fund than individual trustees, and I’ve mentioned some of these reasons previously [1].
This week I’m going to explain what to do if your super fund has individual trustees and you want to convert to a corporate trustee [2].
Let’s take a look at some issues that might arise when you attempt this transition, and the right order in which you should deal with them.
The trust deed
The trust deed is the first port of call with any action you wish to take with your SMSF, so please make sure your DIY super fund’s trust deed permits the use of a corporate trustee. If it doesn’t, you’ll need to have the deed officially redrafted. If it does, follow the rules in that deed for the resignation of the individual trustees and the appointment of the corporation.
Create a company
When you decide to change from individual trustees to a corporate trustee, you might be tempted to use an existing company, such as your own business or the trustee of your family trust. Resist this temptation because problems can arise when super fund assets become tangled with family trust or business assets, and it can become difficult to verify which entity owns which asset. Also if the other entity has legal or solvency issues, your super fund’s assets can get caught up in any related proceedings.
It’s better to use a company specially created to be your SMSF trustee. Many organisations can help you with this task (you can find them in our Service Providers Directory [3]) for a once-off fee between $650 and $800, including a $426 fee paid to the Australian Securities and Investments Commission (ASIC). Don’t forget about the annual ASIC fee!
In the business world, it’s technically possible to start a company without a formal written constitution, but this option isn’t possible for corporations that have the sole job of being a super fund trustee, so you’ll need to draft a constitution.
Tax Office
Once the trustee change has been made, you need to inform the Australian Tax Office (ATO) as soon as possible. A Tax Agent can inform the ATO for you via its online Tax Agent business portal.
Bank Accounts
Before making any changes to trustees, most banks will want to see the formal resignation of the individual trustees and the appointment of the corporation. Some will want to see the company’s certificate of registration. Sometimes, banks will want a copy of your fund’s trust deed
Share registries and brokers
Most of these will have similar requirements to your bank, however some brokers insist that your individual trustee account be closed and a new account be created for the corporation. Such a process is a significant hassle because in some cases you have to convert the shares to issuer sponsored holdings, make the trustee changes and then convert the shares to broker sponsored holdings.
Real estate
Any change to a property’s title must be formally registered. In most States and Territories, no or a nominal stamp duty will be payable, but you’ll need to prove to your State Government’s Revenue Office that there has been no change to the beneficial owner of the asset. This task must be completed by a solicitor.
Lease documents
Any super fund asset that is currently leased will have to be updated to take into account the new trustee. You will need a solicitor to complete this task for you
Please be aware, however, that the above steps and issues are general observations. Many organisations have their own peculiar requirements. You might even find that different documents and proofs are asked for in different business areas of the same organisation.
My suggestion, therefore, is to begin your transition work to a corporate trustee by contacting all your share registries, banks, managed fund administration services and life insurance companies to find out what their specific requirements are.
Typically, legal costs arise for real estate and lease changes and the administration costs arise for changes to all other assets. In my experience, an average total cost of between $1,000 and $3,000 can be expected depending upon how many assets your super fund owns and what those assets are.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Also in the Switzer Super Report
- Paul Rickard: Our high-income portfolio – the first review [4]
- Peter Switzer: Can stocks continue to rise? [5]
- Rudi Filapek-Vandyck: The broker wrap: Three buys amid the downgrades [6]
- George Boubouras: How global growth cuts impact your portfolio [7]