Practicalities involved in running own SMSF

[jorgon]

I have, for instance, seen other accountants advise that if you want a company structure you will need to set-up an entirely new fund to be able to change the shares in a Commsec account to reflect the new trustee name! (Not to mention that they were ignorant of the capital gains impact, the implications and documentation required to set-up and roll benefits into a new fund).

There would seem to be two ways to achieve a change from individual trustees to a corporate trustee. First way: keep the existing fund with its existing TFN and ABN but change the structure from individual trustees to corporate trustee, transferring all the assets from the individual trustees to the corporate trustee. And second way: start an entirely new fund, register it with the ATO and get a new TFN and ABN for it and transfer-in to the new fund all the assets from the individual trustees. Either way the assets could be transferred in specie provided the new trust deed permits this as it should do, so the assets would not have to be sold. And either way you would need a completely fresh trust deed. This is because the wording of an SMSF trust deed which uses a corporate trustee is necessarily different in many respects from the wording of an SMSF trust deed which uses individual trustees.

(The) term deposits would not only be cancelled but would be subject to penalty. Obviously I won't be going ahead under this circumstance, i.e. just on the term deposits losing 8% p.a. plus whatever the penalty is, and having to start over at much lower rate.

I now wish I'd gone the corporate trustee structure in the first place for the reason you offer. Always better not to have the involvement of any other person and the potential complications should that person drop dead or whatever.

There is no reason why you can't be a member of two SMSFs at the same time, so you can form a new SMSF with a corporate trustee, and then transfer-in from your existing SMSF those assets which will incur no penalty on change of ownership (and you need to check that the trust deed of the existing SMSF permits this, and also check any tax implications).
Then when your term deposits mature, you can transfer-in that money. Finally you can close the existing SMSF.
You would have two lots of accountants and auditors fees for a while, but whether this is prohibitive depends on the size of your funds. Or perhaps your usual accountant and auditor would offer reduced fees for each?

Is there anyone who has a corporate trustee who could point out any disadvantage not so far considered?

I would generally agree that a corporate trustee is better for the reasons given. However there is one reason not to have a corporate trustee not mentioned so far: you cannot have minor children as members of an SMSF with a corporate trustee.

However I now know that the asic fee is $42, and there isnt anything else invloved that one couldnt do ones self, so happy to accept that I was wrong about the costs. So I would call that a success

Actually the additional fees involved are the one-off ASIC fee of $426 to register the corporate trustee as a company (this went up from $412 on 1 July), and the annual review fee of $42 (up from $41 on 1 July).
I would agree that your home can be the registered office, indeed I would say this is preferable if you control the company because it means that you will receive all formal documents directly. You just have to remember to register a change with the ASIC if you move house so that the details are changed on the register.

 

[village idiot]

I would generally agree that a corporate trustee is better for the reasons given. However there is one reason not to have a corporate trustee not mentioned so far: you cannot have minor children as members of an SMSF with a corporate trustee.

.

This is an interesting point; could anyone elaborate on any advantages (and disadvantages) to having your minor children as members of an SMSF ?

I have 2 minor children, but I hadnt seen any advantages to having them as members while still minors and not earning. There may certainly be advantages is adding them later on, but this is where setting it with a corp trustee now facilitates that some time in the future.

thanks

 

[Julia]

There would seem to be two ways to achieve a change from individual trustees to a corporate trustee. First way: keep the existing fund with its existing TFN and ABN but change the structure from individual trustees to corporate trustee, transferring all the assets from the individual trustees to the corporate trustee.

This is what I have in mind.

And second way: start an entirely new fund, register it with the ATO and get a new TFN and ABN for it and transfer-in to the new fund all the assets from the individual trustees. Either way the assets could be transferred in specie provided the new trust deed permits this as it should do, so the assets would not have to be sold. And either way you would need a completely fresh trust deed. This is because the wording of an SMSF trust deed which uses a corporate trustee is necessarily different in many respects from the wording of an SMSF trust deed which uses individual trustees.

Useful information, jorgon, thank you.

There is no reason why you can't be a member of two SMSFs at the same time, so you can form a new SMSF with a corporate trustee, and then transfer-in from your existing SMSF those assets which will incur no penalty on change of ownership (and you need to check that the trust deed of the existing SMSF permits this, and also check any tax implications).
Then when your term deposits mature, you can transfer-in that money. Finally you can close the existing SMSF.

I would definitely not want to create a new fund and have all the extra work and expense of having two concurrent funds.

I'm also a bit confused about this suggestion in light of your having suggested above that the assets can be transferred in specie without implying change of ownership.
i.e. why would you create a new fund just to hold the existing term deposits if no penalty is incurred in the first alternative?

Btw, on that, given I received a different response from the SUN call centre and the local branch manager, I've written to SUN head office legal department requesting a definitive answer.
ANZ and Rabodirect have both said no problem, they will simply alter the name on the account.

I would generally agree that a corporate trustee is better for the reasons given. However there is one reason not to have a corporate trustee not mentioned so far: you cannot have minor children as members of an SMSF with a corporate trustee.

Would have no intention of involving any children or any other person.

Actually the additional fees involved are the one-off ASIC fee of $426 to register the corporate trustee as a company (this went up from $412 on 1 July), and the annual review fee of $42 (up from $41 on 1 July).
I would agree that your home can be the registered office, indeed I would say this is preferable if you control the company because it means that you will receive all formal documents directly. You just have to remember to register a change with the ASIC if you move house so that the details are changed on the register.

OK, thanks for that also. I hadn't discovered the ASIC fee of $426 but am not surprised.

 

[awg]

Is there anyone who has a corporate trustee who could point out any disadvantage not so far considered? awg, if you're around, I think you use a corp. trustee?

Only one major problem,

that is that most financial institutions will classify you as a "business" because "pty ltd" is on the title, therefore it is much harder to get the best rate of interest on cash/term deposits.

Also very time consuming and seriously annoying to deal with the extra layer of paperwork, and the fact that the majority of operatives at most places are too inexperienced to even know what you are talking about, corporate trustee, let alone how their own organisation deals with them...( yes jan, they are all different).

(there are details on another thread)

here is some unreserved ADVICE...select a SHORT title for your trustee & smsf names

You can also google "corporate trustee smsf" etc and get other details

In summary, if you want complete control , and no mucking about with other peeps signatures, or are sole, corporate is ideal.

Also if you retain substantial share holdings in your own name, I am led to beleive that life is simpler with corporate trustee smsf

 

[YELNATS]

And second way: start an entirely new fund, register it with the ATO and get a new TFN and ABN for it and transfer-in to the new fund all the assets from the individual trustees. Either way the assets could be transferred in specie provided the new trust deed permits this as it should do, so the assets would not have to be sold.

I would generally agree that a corporate trustee is better for the reasons given. However there is one reason not to have a corporate trustee not mentioned so far: you cannot have minor children as members of an SMSF with a corporate trustee.

On the first point, I would have thought any transfer of assets from the first SMSF with its' own TFN and ABN to a separate SMSF with a different TFN and ABN would be deemed by the ATO to be a "sale", whether the sale is undertaken either via on-market or off-market processes, with therefore potential capital gains/losses tax implications.

With ATO approval, for several years I have operated my SMSF with a corporate trustee with 4 members, myself, my wife, my son and my daughter. For a few of those years my daughter was under 18 years, ie. then still a "minor". During those years myself, my wife and my son were directors of the trustee company. When she reached 18 years my daughter also became a director of the trustee company and received literature from the ATO to this effect. This seems to indicate that you can have minor children as members of an SMSF with a corporate trustee.

 

[jorgon]

With ATO approval, for several years I have operated my SMSF with a corporate trustee with 4 members, myself, my wife, my son and my daughter. For a few of those years my daughter was under 18 years, ie. then still a "minor". During those years myself, my wife and my son were directors of the trustee company. When she reached 18 years my daughter also became a director of the trustee company and received literature from the ATO to this effect. This seems to indicate that you can have minor children as members of an SMSF with a corporate trustee.

The problem about having minor children as members of an SMSF with a corporate trustee has only recently been recognised by the ATO. It was raised in the National Tax Liaison Group (NTLG) Superannuation Technical Sub-group (STS) meeting of September 2010 (item 6.8). The sub-group is made up of ATO officers and superannuation tax professionals and regularly meets to discuss superannuation tax matters.

In the meeting, the ATO stated "we do not consider that it is within the scope of (the legislation) to regard a fund as an SMSF if it has members who are under 18 years, a corporate trustee and the parent/guardian is not a legal personal representative". It stated that it was aware of less than 50 funds that may be in the position of effectively being treated as SMSFs even though they have members under 18 years of age and a corporate trustee in place and that it intended to resolve the issues with these funds "within the next six to nine months".

In other words, these funds may not have been operating lawfully in the past and the ATO has only just realised this. From the notes of the meeting you get the impression that the ATO would be lenient on these funds and offer them some way to make amends.

The problem arises because of a combination of these four things:-
(a) The Corporations Act does not permit a minor child to be a director of the corporate trustee.
(b) The Superannuation Industry (Supervision) Act ("the SIS Act") requires that each member is a director of the corporate trustee.
(c) The SIS Act provides some exceptions to the requirement at (b). In particular it provides that a parent or guardian can be a trustee instead of a minor child. The word "trustee" here clearly refers to individual trustees and not to a director of a corporate trustee. So this does not work in the case of a corporate trustee.
(d) The SIS Act also permits a "legal personal representative" to be a director of the corporate trustee instead of a minor child. However legal personal representative is defined [in section 10(2)] as meaning:-
the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person.

Since a child cannot grant a valid power of attorney and (contrary to the belief of some) a parent is not automatically the trustee of the child's estate, this does not work either. And here it is clear that the trustee would need to be a trustee of the whole of the child's estate, and not just of that part of it that happens to be within the fund. Hence it is not possible to get round the rules by the parent declaring a trust in respect of monies contributed to the fund for the child.

These problems don't arise where the SMSF has individual trustees, because then the child can be represented on the fund by one or both parents under (c) above (exactly how this is done will depend on the terms of the trust deed).

 

[tinhat]

We have a SMSF that changed trustees from individual trustees to a corporate trustee. We did this because one of the members and trustees died. It is easier to deal with the death of a director of the corporate trustee than to deal with the death of an individual as trustee. I know because the deceased trustee was the only person who had access to the online trading account and the bank froze it during the GFC right when in the middle of the market crash. I ended up in a mess of paperwork with the bank's online broking subsidiary because they for a while insisted on probate when quite clearly the estate of a deceased member of a super fund has nothing to do with the administration of a super fund.

Anyway, long story short, we bought a shelf company and changed it status to a special purpose SMSF trustee company with ASIC. We updated the super fund trust deed to reflect that the old trustees had retired and the new trustee was the company. We then had to get the bank and the online broker to transfer all the assets into the name of the new trustee.

 

[Julia]

We have a SMSF that changed trustees from individual trustees to a corporate trustee. We did this because one of the members and trustees died. It is easier to deal with the death of a director of the corporate trustee than to deal with the death of an individual as trustee. I know because the deceased trustee was the only person who had access to the online trading account and the bank froze it during the GFC right when in the middle of the market crash. I ended up in a mess of paperwork with the bank's online broking subsidiary because they for a while insisted on probate when quite clearly the estate of a deceased member of a super fund has nothing to do with the administration of a super fund.

Anyway, long story short, we bought a shelf company and changed it status to a special purpose SMSF trustee company with ASIC. We updated the super fund trust deed to reflect that the old trustees had retired and the new trustee was the company. We then had to get the bank and the online broker to transfer all the assets into the name of the new trustee.

Thanks for that, tinhat. It's a great example of a corporate trustee being more practical.

When you did the change did your accountant do the change of assets from the original structure to the new, or were you able to do this yourself?

The ATO have a downloadable form (NAT 71223) which seems very simple to effect the transfer so I don't see why I can't do this myself. My accountant has quoted around $800 for his role in making the change. That's in addition to the cost of buying the special purpose company so it seems excessive unless there's something else I'm not taking into consideration.

I'd be advising the registries and the financial institutions of the change, so am not incurring accountant's fee there.

I'd much appreciate any further advice you might have on this.

 

[village idiot]

this lot is advertising company set up for $475, which includes the $426 ASIC fee. In other words they are charging just $49 to hold your hand. seems reasonable to me...


http://www.ozcorponline.com.au/Companies/Companies.html

 

[Julia]

Thanks very much for that, village idiot.

 

[Ves]

There would seem to be two ways to achieve a change from individual trustees to a corporate trustee. First way: keep the existing fund with its existing TFN and ABN but change the structure from individual trustees to corporate trustee, transferring all the assets from the individual trustees to the corporate trustee. And second way: start an entirely new fund, register it with the ATO and get a new TFN and ABN for it and transfer-in to the new fund all the assets from the individual trustees. Either way the assets could be transferred in specie provided the new trust deed permits this as it should do, so the assets would not have to be sold. And either way you would need a completely fresh trust deed. This is because the wording of an SMSF trust deed which uses a corporate trustee is necessarily different in many respects from the wording of an SMSF trust deed which uses individual trustees.

If you transfer existing assets off-market from an existing SMSF to a new SMSF you will incur capital gains tax. The trust deed won't save you here. In the case that you incur capital losses, or have existing capital losses these will be quarantined within the old SMSF. I would be curious if you actually have read something from the Australian Taxation Office that says otherwise. But since one entity is selling an asset to another entity (SMSF to SMSF) it triggers a CGT event. You will also have to complete ETP Rollover documentation for the transfer (calculating the taxable and tax-free components etc).

There is no capital gains if the existing fund changes from individual trustee to corporate trustee as there has been no change of beneficial ownership.

Why would you set up a new SMSF at the expense of capital gains tax when you could amend the old deed and insert a corporate trustee?

Willing to be corrected if someone knows something that I do not.

 

[Ves]

Thanks for that, tinhat. It's a great example of a corporate trustee being more practical.

When you did the change did your accountant do the change of assets from the original structure to the new, or were you able to do this yourself?

The ATO have a downloadable form (NAT 71223) which seems very simple to effect the transfer so I don't see why I can't do this myself. My accountant has quoted around $800 for his role in making the change. That's in addition to the cost of buying the special purpose company so it seems excessive unless there's something else I'm not taking into consideration.

I'd be advising the registries and the financial institutions of the change, so am not incurring accountant's fee there.

I'd much appreciate any further advice you might have on this.

As you are not creating a new fund the above form is incorrect.

The form that you require is found at:

http://www.ato.gov.au/content/downloads/cas17358form.pdf

But. You will need a company (registered with ASIC) with a valid ACN. You could do it yourself if you ordered the company and trust deed amendment yourself. But the question is; do you know exactly what you require?

The $800.00 fee probably includes the amendment to the trust deed and the new corporate trustee company set up. As well as the relevant minutes.

The actual asset transfers you could do yourself by contacting the relevant financial institutions. But you will need certified copies of the new deed, the minutes etc before you can do this.

 

[Julia]

As you are not creating a new fund the above form is incorrect.

The form that you require is found at:

http://www.ato.gov.au/content/downloads/cas17358form.pdf

Many thanks, Ves. Yes, I realised later I was onto the wrong form.

But. You will need a company (registered with ASIC) with a valid ACN. You could do it yourself if you ordered the company and trust deed amendment yourself. But the question is; do you know exactly what you require?

Acquiring a company seems to be pretty straightforward and available via many firms who do just this on the net.
But my understanding is that the trust deed amendment is a legal document and so, no, I would not know how to word or present that. Do you have any links to advice about this?

The $800.00 fee probably includes the amendment to the trust deed and the new corporate trustee company set up. As well as the relevant minutes.

This is why I'm querying the cost I've been quoted, in that no, the $800 fee does not include the acquisition of the company or the ASIC fee of $400 ish. That is quoted as another $650.

So all up, the quote is around $1500 which strikes me as somewhat expensive.

Any comments from anyone on this would be appreciated, you especially Ves.

The actual asset transfers you could do yourself by contacting the relevant financial institutions. But you will need certified copies of the new deed, the minutes etc before you can do this.

Yes, thank you, I'm OK with this bit. Not difficult.

 

[tinhat]

Thanks for that, tinhat. It's a great example of a corporate trustee being more practical.

When you did the change did your accountant do the change of assets from the original structure to the new, or were you able to do this yourself?

The ATO have a downloadable form (NAT 71223) which seems very simple to effect the transfer so I don't see why I can't do this myself. My accountant has quoted around $800 for his role in making the change. That's in addition to the cost of buying the special purpose company so it seems excessive unless there's something else I'm not taking into consideration.

I'd be advising the registries and the financial institutions of the change, so am not incurring accountant's fee there.

I'd much appreciate any further advice you might have on this.

These notes are from my recollection so may not be exactly accurate...

1. Buy shelf company, set up shareholders and directors during a special meeting with the accountant. Accountants generally order this online using a service like Reckon Docs.

2. Create replacement deed. Your accountant will need a copy of the original deed. The replacement deed will specify the new trustee (the corporate trustee).

3. Hold a special meeting with your accountant and sign the minutes retiring the old trustee, appointing the new trustee and adopting the replacement deed.

4. Deal with your bank and online broker. Set up new bank accounts in the corporate trustee name and transfer money over. Set up new online broking account with a new HIN and transfer shares over. In our case, with the online broker (NAB Online Trading) it may have been that because we were also dealing with the deceased estate's personal shares that they did not charge us for off-market transfers (usually $55 each), there may be fees for transferring the shares, you would have to enquire. Generally with deceased estates banks, the motor registry, etc waive transfer fees. We only have cash and shares so I don't know what would be involved with transferring other assets.

I can't remember what our accountant charged us at the time, but we have changed accountant since then because price is not the only consideration when hiring professional service - knowledge and competence helps! Your price seems a bit much though for around three hours of professional services.

As a reference for costs, refer to the Reckon Docs price list which includes SMSF replacement deeds, shelf companies, etc:

http://www.reckon-docs.com.au/Portals/0/Price Lists/July 2011/ReckonDocs_stardard_pricelist_2011.pdf

 

[village idiot]

And either way you would need a completely fresh trust deed. This is because the wording of an SMSF trust deed which uses a corporate trustee is necessarily different in many respects from the wording of an SMSF trust deed which uses individual trustees.

how different are we talking? I have a trust deed (individual trustees) that I have downloaded and put a fair bit of work into 'customising'. Wondering whether it is easier to change that deed wording to suit corp trustee now, or are the differences big enough to warrant starting again?

thanks

 

[Julia]

These notes are from my recollection so may not be exactly accurate...

1. Buy shelf company, set up shareholders and directors during a special meeting with the accountant. Accountants generally order this online using a service like Reckon Docs.

2. Create replacement deed. Your accountant will need a copy of the original deed. The replacement deed will specify the new trustee (the corporate trustee).

3. Hold a special meeting with your accountant and sign the minutes retiring the old trustee, appointing the new trustee and adopting the replacement deed.

Many thanks, tin hat. I've contacted Reckon Docs for a quote to do the whole thing, i.e. Upgrade the Trust Deed, prepare the Amendment of Trustee document, and arrange the purchase of the sole purchase company. Total cost for all this in hard copy (rather than my having to download and print) comes out at $965. This sounds more reasonable than what my accountant is quoting.

4. Deal with your bank and online broker. Set up new bank accounts in the corporate trustee name and transfer money over.

This seems to vary. Two of the banks advise no need to set up new accounts: they would simply alter the name on the accounts.
SUN, on the other hand, would close the accounts and open new ones, retaining the original interest rate.

Set up new online broking account with a new HIN and transfer shares over.

OK, so I'd need to send certified copy of Deed of Amendment (or whatever it's called) to Etrade and presumably they'd do whatever is required. I have minimal holdings at present anyway.

I can't remember what our accountant charged us at the time, but we have changed accountant since then because price is not the only consideration when hiring professional service - knowledge and competence helps!

Agree. I do know that everything my accountant does is done absolutely properly and perhaps quibbling about a few hundred dollars is silly. Also, he's always available for discussion about anything throughout the year at no additional charge.

As a reference for costs, refer to the Reckon Docs price list which includes SMSF replacement deeds, shelf companies, etc:

http://www.reckon-docs.com.au/Portals/0/Price Lists/July 2011/ReckonDocs_stardard_pricelist_2011.pdf

As above. Does anyone have experience of using Reckon Docs?

how different are we talking? I have a trust deed (individual trustees) that I have downloaded and put a fair bit of work into 'customising'. Wondering whether it is easier to change that deed wording to suit corp trustee now, or are the differences big enough to warrant starting again?

thanks

As will be obvious, I'm no expert when it comes to Trust Deeds but I gather the wording can be pretty important with respect to e.g. whether you can borrow or not, how the assets in the fund are treated when you die and probably a lot else.

 

[Ves]

But my understanding is that the trust deed amendment is a legal document and so, no, I would not know how to word or present that. Do you have any links to advice about this?

At my firm we use ACIS.

http://www.acis.net.au/

Another is Clear Docs.

http://www.cleardocs.com.au

I remember their service being cheaper than ACIS. The quality of the presentation isn't quite as good as ACIS; but I do not recall anyone having any trouble with their products.

I would recommend a trust deed upgrade at the same time that you amend the deed to insert a corporate trust deed. The superannuation legislation is ever-changing, so chances are that if your deed is more than a few years old it is out-of-date in some respects. Your accountant would be best to answer this after looking at your deed, of course.

From memory a change of trustee / upgrade of deed is $330, plus $700-$800 for the company. Once you've factored in your accountant's time filling in the forms, his or her advice and profit margin on top of this, especially if they are offering to change the investments for you $1500 seems ball-park.

You can however, if you feel comfortable do all of this yourself. Most providers let you fill out the order forms online these days.

You seem fairly switched on Julia; I do not see why you wouldn't be able to achieve this on your own.

 

[Ves]

how different are we talking? I have a trust deed (individual trustees) that I have downloaded and put a fair bit of work into 'customising'. Wondering whether it is easier to change that deed wording to suit corp trustee now, or are the differences big enough to warrant starting again?

thanks

Please don't. Not only are these products protected by copyright law, but they are checked over by professional lawyers. It only takes a word out of place and it will cost you a lot more than the mere $300-400 to amend the deed.

 

[village idiot]

Please don't. Not only are these products protected by copyright law, but they are checked over by professional lawyers. It only takes a word out of place and it will cost you a lot more than the mere $300-400 to amend the deed.

Just to be clear, the trust deed I refer to is not yet executed ie I have not yet set up the SMSF. Therefore i am talking about changing the wording of it now as opposed to amending an operational deed.

 

[Ves]

Just to be clear, the trust deed I refer to is not yet executed ie I have not yet set up the SMSF. Therefore i am talking about changing the wording of it now as opposed to amending an operational deed.

Same issues as above.