Valid trustee structures for an SMSF

Every self-managed superannuation fund is a trust, so it must have a trustee. The Superannuation Industry (Supervision) Act 1993 tightly controls who that trustee can be, because the trustee structure is what keeps the fund ‘self-managed’: as a general rule every member must be involved in running the fund, and no one who is not a member may control it. Getting the structure right at establishment matters, because an invalid structure can make the fund non-complying and expose it to significant tax consequences.

There are two permitted structures: individual trustees, or a corporate trustee (a company that acts as trustee, with the members as its directors). The choice drives who must be appointed and how the fund is documented, but both must satisfy the same underlying alignment rule between members and controllers.

The core rule for a fund with two to six members is a mutual one: for an individual-trustee fund, every member must be a trustee and every trustee must be a member; for a corporate-trustee fund, every member must be a director of the trustee company and every director must be a member. In other words, you cannot have a member who is not also a trustee/director, and you cannot have a trustee/director who is not also a member. (SMSFs have been able to have up to six members since 1 July 2021; before that the limit was four.)

Single-member funds are the exception to the “you need at least two people” intuition. A single-member fund can use a corporate trustee where the member is the sole director, or one of no more than two directors. If individual trustees are used instead, the fund must have two individual trustees — the member plus one other person — because a trust cannot sensibly have a sole individual trustee who is also the sole beneficiary. For this reason a corporate trustee is the natural choice for a single-member fund.

A few relationship limits apply. The second trustee/director of a single-member fund, and any co-trustee generally, must not be an employer of the member unless they are also a relative. All trustees and directors must be at least 18 years old; where a member is under 18 (or otherwise lacks legal capacity), their parent, guardian or legal personal representative acts as trustee or director in their place. A member’s legal personal representative can also act for them under an enduring power of attorney, or for a deceased member’s estate, without breaching the member/trustee alignment rule.

Critically, no trustee or director may be a ‘disqualified person’. A person is disqualified if they have been convicted of an offence involving dishonesty, have been subject to a civil penalty order under the SIS Act, are an undischarged bankrupt or insolvent under administration, or have been disqualified by the ATO or a court. A company cannot act as trustee if a responsible officer is a disqualified person, or if the company is in liquidation or has had a receiver appointed. Acting as trustee while disqualified is a criminal offence, so this should always be checked before appointment.

At CoSec Partners we prepare the SMSF trust deed and, where required, register the corporate trustee as a special-purpose company, with the deed drafted and signed off by Key Legal, an independent external law firm. We do not provide financial or legal advice on which structure suits a member’s circumstances — that should come from their accountant or adviser — but the establishment documents we produce reflect the structure you select in the order form.