By Liam Shorte 23 Nov 2015

Switching to a corporate SMSF trustee

If your fund has individual trustees you may wish to change to a company instead. In this article we explain how to go about it.

Snapshot

  • Step-by-step guide to switching from individual trustees to a company
  • The ease of the task will depend on your circumstances
  • We highlight the pitfalls to be avoided

In Give your SMSF a corporate trustee we argued the case for having a company as the trustee of your SMSF. If you’re just establishing your SMSF it’s a piece of cake, but it’s not so easy to switch if you’ve already set it up. Here then, is our step-by-step guide.

Check the trust deed

The first step is to check your trust deed. It’s the ‘how to’ manual for your fund and you should consult it before making any changes. If you’re not comfortable doing this yourself you should have an adviser or lawyer review it for you.

If the trust deed allows the trustee to be changed to a corporate trustee then you can tick that box, although you need to check for specific rules on how this is to be done. If it doesn’t allow it you should consider a deed upgrade (available soon through Eviser Docs) to bring the powers up to date. As well as enabling you to switch to a corporate trustee, this should pick up any recent legislative changes.

Other online services such as Reckon Docs, Top Docs and SuperCentral also offer trust deed upgrades, although in the case of SuperCentral it’s generally only available through an administrator or adviser.

You can also have your deed updated by your accountant or lawyer, but we don’t recommend it. It’s likely to cost more and you’ll need to request regular updates at further cost.

If your trust deed is in order (or once it’s updated) you’re ready to move to the ‘conversion phase’.

Conversion documents

The conversion documentation can be obtained from your administrator, or one of the online providers mentioned above. Generally we recommend obtaining conversion documentation from the same provider you got your fund’s trust deed, although if you’re comfortable checking that the conversion documents comply with your deed this may not be necessary.

Again, you can use your accountant or lawyer to prepare the documents, but it’ll cost you.

The document package should include resolutions to manage the resignation of the individual trustees and the appointment of the new corporate trustee. It should also contain consent forms for the directors of the trustee company (more below) and the ATO SMSF Trustee Declaration form (which must be kept on file for at least 10 years).

Of course, before the documents can be produced, you’ll need to set up your corporate trustee.

Setting up the corporate trustee

First step is making sure you can use your preferred company name. This can be done using the 'Check Name Availability' option on the ASIC registers at ASIC Connect.

Remember to keep it simple as, in the future, you might be writing it a lot.

We suggest using a new special purpose trustee company to be the SMSF trustee. Your chosen document provider will be able to arrange this for a one-off fee (the Eviser Docs fee is $660, including the compulsory ASIC charge of $463 to register a proprietary company). After that, it’s just the $46 annual ASIC fee (based on current prices).

It’s possible to use an existing company (the trustee of a family trust, for instance) but you need to very careful going down this route, especially where property and businesses are involved. The risk is your SMSF assets end up entangled in a business dispute or litigation, or simply that it’s confusing and things get mixed up.

Inform the ATO

Once the trustee conversion has occurred, you need to inform the Australian Taxation Office (ATO). You’ve got 28 days to do this. If you use a Tax Agent they can inform the ATO through their online business portal or, if you have a primary digital certificate (or AUSkey) you can do this yourself using the online service.

Otherwise you have to complete and lodge the ‘Change of details for superannuation entities (NAT 3036) form.

Changing Details

Once your SMSF is operating with a corporate trustee, you’ll need to change the name on its bank accounts and various investments. Unfortunately this is often the hard part.

Because of this, it’s crucial that you check with each of your providers (banks, brokers, fund managers) first. It’s better to be aware of potential nightmares before you’ve made the switch so you know the full costs (for instance, the cost of having to replace insurance policies) and can meet any additional documentation or stamping requirements.

Bank accounts

The first step is to change your SMSF’s bank account details. Typically this will require you to show your bank a certified copy of the Deed of Amendment appointing the new trustee and the resignation of the old trustee (they might both be in the same document). You’ll also need to give them the Australian Company Number (ACN) of the corporate trustee and possibly a certified copy of the company’s certificate of registration.

Tip: Unless you’ve got a certifier handy, get a number of copies of your key documents certified upfront. It varies from provider to provider but the documents often needed are the current Trust Deed (or sometimes just the front page, Schedule and signature page), the Deed of Amendment, Company Certificate of Registration and drivers licenses of the directors of the company and major shareholders (typically those with more than 25 per cent of the company).

Term deposits

You’ll need to provide similar details to those for your bank accounts but you need to work out first whether changing the name will cause you to break your term deposit early. If so, it’s likely to cost you valuable interest.

Where this is a problem Liam advises clients to have the former trustees (the individuals) sign a Statutory Declaration saying they are holding the term deposit on trust for the new trustee (and super fund). Whilst the letter of the law is that all assets must be held in the name of the trustee of the fund, in practice the ATO and the Office of State Revenue of various states have accepted this as an interim measure until the name can be updated properly because the beneficial interest is not changing.

Insurance policies

You should be able to update the name of a policy owner simply by giving the insurance company a copy of the Deed of Amendment showing the new trustee. This won’t trigger any change in beneficial ownership, nor change in tax consequences (in the event of a claim).

However there will be times – for instance, with older policies – where it won’t be so easy. Liam had an example where he tried to amend a policy taken over from a previous provider and the administration system wouldn’t allow it. So there might be situations where you have to bear the cost of cancelling a policy and entering a new one.

As we mentioned above, the key is to check in advance.

Shares and managed funds

In practice, most brokers (online and traditional) and fund administrators require the individual trustee account to be closed and a new account created in the name of the corporate trustee. This will require you to do an off-market transfer form (available from your broker) for each holding, transferring it to the new trustee.

Tip: Use this as an opportunity for some ‘spring cleaning’, by selling down any shares you’ve been hanging onto past their ‘sell by date’ and any small holdings. Also make sure you’ve exited any Dividend Reinvestment Plans. Your broker is likely to charge around $50 per off-market transfer, so you don’t want to transfer shares that will be sold anyway or holdings too small to bear this cost.

Note also that some registries/brokers charge a maximum fee (in the vicinity of $500) for a group of transfers, so it might be best to do them all at once.

Fund managers will generally allow you to do a transfer of managed fund units without a buy/sell spreadThe 'buy/sell spread' is a small adjustment made to the value at which managed fund units are issued to investors, or redeemed. It's the manager's estimate of the transaction costs involved. Managed funds typically publish (daily) an 'entry price' and 'exit price'. The difference between these amounts and the per unit value of the fund is the buy/sell spread. but you may have to have the transfer form stamped by the Office of State Revenue depending on your state. For managed funds registered in NSW this attracts a nominal fee of $10 to $50 ($20 in the ACT & SA) but there’s no duty on managed funds registered in Victoria, Queensland or Western Australia. Take note that this hinges on where the fund is located, not where you live.

Property

Property is probably the most difficult asset to deal with, due to the time and cost involved in making the necessary changes. The change to a property’s title must be formally notified and registered with the relevant state or territory’s land titles office such as the NSW Land & Property Information (LPI) or the Victoria Department of Sustainability and Environment (DSE). This will generally need to be processed by a lawyer or conveyancer, as the systems can be complicated – they’re really not geared up for individuals to use.

If you can show there has been no change to the beneficial owner of the property, then there should be no (or nominal) stamp duty payable. But be sure to check this in advance. See the attached table for a state by state summary of stamp duty rules on a change of trustees.

Property borrowing arrangements are another headache, although many lenders will require a corporate trustee in the first place. If you’ve borrowed with individual trustees you’ll need to consult your lawyer to work out whether a change is possible and to ascertain the steps involved. Be careful as such a change may trigger a ‘payout’ clause with your lender. This would allow them to call for a repayment of the loan or to revise the terms and conditions.

Lease agreements

If an SMSF asset is currently leased, the lease agreement will need to be updated for the new trustee. We suggest legal advice beforehand to ensure you don’t leave your fund vulnerable, for instance, to the tenant being able to terminate the lease.

In a nutshell

We’ve aimed to highlight the usual steps, and tips on how to manage them, but you will come across organisations with requests from left field. For instance, some banks might request different documents or wish to see original documents at a local branch.

Remember, as we highlighted in Give your SMSF a corporate trustee, a lot of these steps are things that will need to be done at some point anyway. In the typical ‘two member with individual trustees’ SMSF, the death of a member will necessitate similar changes. This means you might not really be bearing $500 of cost to transfer shareholdings, but simply shifting the timing of a cost you’ve already committed to.

This highlights one of the big advantages of making the switch to a corporate trustee now: you control when these steps occur, rather than having them foisted upon you or your fellow SMSF member.

 

Liam Shorte is a principal of Verante Financial Planning Pty Ltd (www.verante.com.au), a corporate authorised representative of Magnitude Group Pty Ltd (AFSL 221557). This article is a general information article and to the extent it contains any financial advice it is general advice only. We recommend seeking personal advice on your own circumstances.

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