Closer to Certainty for Minimum Taxation of Trusts: Treasury Releases Draft Legislation
After announcing the intended introduction of a minimum 30% tax on discretionary trusts as part of the 2026/27 Federal Budget […]
Corporate Trustee Clarity
Current as of: 14 November 2024.
Whilst our advisor clients appreciate the benefits of using a corporate trustee rather than individual trustees, they often encounter challenges convincing their clients of those benefits, especially in the context of the increased set-up cost of registering a company. So, we’ve collated the top reasons to use a corporate trustee:
Asset protection
The overarching principle here is separating risks from assets. The trustee of a trust is personally liable for the debts of the trust. Whilst the trustee can be indemnified for this out of trust assets, issues arise when there are insufficient trust assets to satisfy the liability. The trustee will be liable regardless and so an individual trustee who cannot claim against the indemnity has his or her personal assets exposed to the claims of creditors of the trust. Using a corporate trustee rather than individuals, mitigates against this risk, by limiting the liability to that of the (ideally sole purpose) corporate trustee rather than individuals.
Administrative Continuity & Flexibility
It can be costly and administratively difficult and time consuming to transfer title of trust assets when there are changes to individual trustees. Conversely, if using a corporate trustee, changes in control can be affected by relatively simple corporate secretarial documents to change the directors and/or shareholders, without requiring actual transfers in the title of assets.
There is also the benefit of only requiring two directors to sign on behalf of a corporate trustee, in circumstances where all individual trustees would be required to sign.
SMSFs – Director Penalties and Single Director Trustee Companies
In the case of SMSFs, director penalties are imposed on a trustee basis, so where an SMSF has individual trustees, the ATO will impose any penalty on each individual trustee, meaning the penalty will be multiplied by the number of trustees. Corporate trustees, however, will incur only 1 penalty.
Additionally, in single-member funds, it is possible to have a single-director company act as trustee – this avoids the need to appoint a second non-member trustee as would be the case in the event of individual trustees.
Contact us to discuss any of these issues further.
