Can my client’s trading entity be the Trustee of their SMSF?

25 Sep 2019

Alex Denham

Senior SMSF Specialist

When your client already has an established company, it is natural to ask if that company can be the Trustee of their new SMSF – why pay for another company when they already have one? We don’t recommend this approach - let’s have a look why.

Whilst it’s possible for a company to act in multiple capacities, we generally take the approach that an SMSF trustee company should be a “special purpose company” acting exclusively as the trustee of an SMSF.

We further suggest that if an individual or family group have more than one SMSF, a different special purpose company is set up as trustee for each fund, with each company’s sole purpose to act as trustee of the relevant SMSF.

There are several reasons for this approach:

  • There are specific rules for SMSFs as to who must be directors of the trustee company which may not be able to be satisfied if the company has other roles. If the company is running a business, it may need to appoint a new director from time to time. If that director is not also a member of the SMSF, there is a breach of the superannuation law.
  • SMSFs must ensure the fund has clear ownership of its investment assets and are required to hold their assets separately from the members’ personal or business assets. If the trustee is also a trading entity, there could be difficulties in identifying the assets of the SMSF as distinct from business assets.
  • The assets of the SMSF could be at risk if the company is sued in its non-SMSF capacity and vice versa if the company is sued in its trustee capacity.
  • If the company experiences financial difficulties due to its other activities, the trustee in bankruptcy may seek to make a claim over the SMSF’s assets.

Whilst establishing a new company comes with added expense, it saves a lot of headaches down the track. The good news is that reduced ASIC fees apply to special purpose companies. Heffron Consulting has a Company Establishment Service as part of our online Document Services.