Self-managed super funds (SMSFs) are a crucial aspect of Australia’s retirement planning landscape and it’s important to become familiar with two of the most common self managed super fund set up. With the flexibility they offer, many Australians opt for this personalised approach to managing their superannuation. Among the various ways to structure an SMSF, two of the most common set-ups are “A Single Member SMSF” and “A Couple Combining Their Super.” This article explores these configurations in detail, providing insights without comparing them.
A Single Member SMSF Setup
Definition and Structure
A Single Member SMSF setup is precisely what the name suggests—a superannuation fund created to benefit one member only. Here’s an exploration of how it works:
Trustee Requirements for a Single Member SMSF Setup
A single-member SMSF setup structure can have either individual trustees or a corporate trustee.
Anyone 18 years old or over can be a trustee or director of a super fund so long as they’re not a disqualified person or under a legal disability (e.g., mental incapacity). However, a parent, guardian or legal personal representative of a member under 18 can be the trustee or director of a corporate trustee on their behalf.
Further specific requirements for each option are as follows:
Having Individual Trustees
- There must be two individual trustees, and the member must be one of them.
- If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.
Having a Corporate Trustee
- The member must be a director of the corporate trustee and can be the sole director (can choose to have one more director).
- If there are 2 directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.
- Directors are required to have a Director ID.
Note, that a member’s legally designated personal representative, possessing an enduring power of attorney for that member, can take on the role of trustee in place of the member.
Trustee Options: Pros and Cons
The choice between corporate and individual trustees will depend on various factors, such as the fund’s investment strategy, the member’s long-term goals, and preferences for control and flexibility.
If a corporate trustee structure is not used in the case of a single member SMSF setup, a second person is required to be a trustee (even though they are not a member with a financial interest in the SMSF.
Whereas a corporate structure allows the member to be the sole director without involving any other person.
Generally, a corporate trustee structure is superior compared to having individual trustees.
| Trustee Type | Pros | Cons |
| Corporate Trustee | Simplifies management if members change. | Establishment and ongoing costs can be higher. |
| Offers a clear separation of SMSF assets from personal assets. | More complex regulatory requirements. | |
| Provides limited liability protection. | ||
| Avoids involving another person and maintains privacy. Circumvent the imposition of trustee obligations on someone that does not even have a financial interest in the SMSF. | ||
| Some SMSF lenders will only lend to SMSF’s with a corporate trustee. | ||
| Individual Trustees | Lower initial setup and ongoing costs. | Less clear separation of SMSF and personal assets. |
| Simpler to establish. | If one trustee becomes unable to act, a new trustee must be found promptly. | |
| Any changes in trustees can be administratively burdensome. | ||
| Involves asking another person to be a trustee, which will mean losing privacy to that person and imposing on them trustee obligations. | ||
| Some SMSF lenders may not lend to SMSF’s without a corporate trustee. |
Summary
Choosing Individual vs. Corporate Trustee for a single-member SMSF setup is a critical decision that requires careful consideration of legal obligations, costs, and strategic goals. Individual trustees may provide a more cost-effective solution, while a corporate trustee offers greater protection and continuity.
Besides these typical advantages of a corporate trustee, the decision to opt for this structure over an individual trustee in a single-member SMSF is often influenced by the desire to avoid involving a person that does not have financial interest in the SMSF. Additionally, the need for privacy and a wish to circumvent the imposition of trustee obligations on such a person often guide this choice.
As this decision has long-term implications for the management and compliance of the SMSF, obtaining Professional Assistance with a professional specialising in SMSF administration, such as an accountant, is strongly recommended to ensure that the chosen structure aligns with the unique needs and objectives of the member.
A Couple Combining Their Super Into One SMSF
Definition and Structure
A very common SMSF setup structure is a couple choosing to set up an SMSF, roll their superannuation into the SMSF, and combine and manage their superannuation together. This allows couples to pool their superannuation assets, creating a larger pool of capital to invest.
Below, we will explore how this works and the specific trustee requirements for this structure.
Trustee Requirements for a Couple setting up an SMSF
In Choosing Individual vs. Corporate Trustee, similarly to a single-member SMSF setup structure, a couple combining their super can have either individual trustees or a corporate trustee, and anyone 18 years old or over can be a trustee or director of a super fund so long as they’re not a disqualified person or under a legal disability (e.g., mental incapacity). However, a parent, guardian or legal personal representative of a member under 18 can be the trustee or director of a corporate trustee on their behalf.
Further specific requirements for each option are as follows:
Having Individual Trustees:
- Both members must be individual trustees.
- Neither trustee can be an employee of the other unless they are relatives.
Having a Corporate Trustee:
- Both members must be directors of the corporate trustee.
- Directors are required to have a Director ID.
- A member cannot be an employee of another member – unless they are relatives.
Note, that a member’s legally designated personal representative, possessing an enduring power of attorney for that member, can take on the role of trustee in place of the member.
Benefits of Combining Superannuation
A couple combining their superannuation in an SMSF presents several significant benefits:
Larger Investment Pool: By merging their superannuation, couples can access a larger capital base to invest from. This allows for more diverse and potentially more lucrative investment opportunities that may have been out of reach for each individual.
Cost Efficiency: Managing a single fund may lead to reduced fees and administrative costs compared to maintaining separate superannuation funds and duplication of fees.
Aligned Investment Strategy: Couples can tailor their Investment Strategy to their shared financial goals and risk tolerance, enhancing coherence and synergy in their investment approach.
Increased Focus on Retirement Planning: Having an aligned investment strategy through necessity of active management and planning is likely to create an increased focus on maximising their superannuation, but how the superannuation component fits in with their overall wealth and retirement strategy.
Streamlined Administration: By combining their superannuation into one SMSF, couples can simplify administration, reporting, and compliance, making management of the fund more efficient.
Potential Tax Benefits: Combining super may also open opportunities for tax-efficient investment strategies, maximising the fund’s growth potential.
Estate Planning: SMSFs generally offer more flexibility in estate planning, ensuring that the member’s wishes are carried out in the event of their death.
Summary
A couple combining their superannuation into one SMSF offers a strategic way to maximise their superannuation through unified investment and administration, potentially leading to more robust financial growth. The larger capital pool enables access to broader investment opportunities, aligns investment strategies with shared life goals, and may lead to cost efficiencies and tax benefits.
Conclusion
Whether you are single or a couple, an SMSF offers a personalised approach to retirement planning, with extensive control and flexibility. However, they also demand time, skill, and adherence to regulations.
As a CPA accounting firm in Caloundra, QLD, Australia, Wardle Partners Accountants & Advisors have been specialising in these common SMSF setups, along with administration, processing, compliance advice, accounting, taxation, and wind-ups for over 40 years. Please note that the above information is general in nature. Wardle Partners does not hold an Australian Financial Services Licence (AFSL) and our company nor any of our employees or directors are not authorised representatives of an AFSL. We do not provide financial product advice or recommend any financial products either expressly or implied.
By providing this overview of the two most common SMSF setup structures, we hope to offer valuable insights and answer questions for those considering this path for retirement planning. The linkages to other blogs within this series offer a more in-depth understanding of related topics, forming a comprehensive guide for SMSF management. If you have any questions or need professional assistance, feel free to contact us or schedule a free consultation with one of our SMSF experts.
Did You Know?
According to Australian Taxation Office (ATO) statistics, as of June 2021:
- Single member SMSFs accounted for 24.4% of all SMSFs in Australia.
- Two-member funds, typically representing couples combining their super, accounted for roughly 68.7% of all SMSFs.
- The remaining percentage encompass SMSFs with more than two members.
These figures are consistent with the previous 4 years and showcase the popularity of two-member funds, possibly reflecting the benefits associated with combining superannuation assets.
