It Depends – Is my company a special purpose super trustee company?

In this edition of It depends, partner Scott Hay-Bartlem talks about whether your company is a special purpose superannuation trustee company.

Video transcript

Welcome to this It depends on ‘Is my company a special purpose superannuation trustee company?’.

Why?

It’s always best practice to have a company as trustee of a self-managed superannuation fund. There’s a couple of reasons. It makes it easier to run and to change trustees as people come and go. It means it’s really clear what assets are owned for the fund, doesn’t get them messed up with other assets. It satisfies the rules to keep things separate. Now, if you have a trustee company that is just trustee of your SMSF, you get a lower annual return fee with ASIC. So, currently as I film this in May 2024, a special purpose super trustee company, the ASIC fee is $63 as opposed to $310 for a normal private company.

Will my company satisfy the rules to be a special purpose super trustee company?

Okay, so this is our it depends. There are two conditions for a company to qualify as a special purpose superannuation trustee company. The first one is it has to be all that company does as trustee of the super fund and the second one is the constitution of the company must contain some special rules.

Only act as trustee of a superannuation fund

So, first condition; the company to qualify, must only act as trustee of that superannuation fund. That includes an SMSF. Now, it’s got to be a regulated superannuation fund. So, we have to have gone and made that formal election to the tax office back at the very beginning when the fund was set up. Now, it can only act as trustee of the fund. It can’t be the trustee of a bare trust, that doesn’t qualify as a special purpose super trustee company. Can’t act as a trustee of a family trust, can’t be a corporate beneficiary, can’t run a business, any of those things. It’s got to have just that one purpose.

What are the rules for the company’s constitution?

So, the company constitution for a special purpose super trustee company, must have a special provision. It must specifically prohibit distributions of the income or capital of the company out to the shareholders, except in a couple of really small exceptions that won’t normally apply. So, to make sure your company is going to qualify, you need to read the constitution and find that specific provision. A general provision which says the company can act as a trustee of a self-managed super fund is not going to be enough. You’ve got to have that specific provision and I’ve seen a number of company constitutions recently where they’re registered as a special purpose super trustee company. We haven’t got that provision in the company constitution. So, you know, people aren’t checking all the time. The other thing to do with this is that if you’ve got that provision in, your company can’t act as anything else, it’s just not practical. So, you can’t use it as a distribution recipient from family trusts. You can’t use it to carry on businesses because you can’t pay your dividends out and that’s going to be a problem.

Can I change to a special purpose super trustee company?

So yes, you actually, you can change your company constitution from a normal company into a special purpose super trustee company. It’s going to be an amendment to the constitution. So, if you haven’t got that provision I talked about in, you’ll need to do a change to your constitution to add it. You’ll then need to register with ASIC and you will need to give them a declaration which goes through the rules, and says that it’s solely the trustee of a superannuation fund and you’ve got those provisions in your constitution. Before you do that, you’ll need to make sure there’s nothing else left. Like if you’re using an old company, there’s always a risk and once you put the provision in your company constitution, you won’t be able to pay out any assets you find or any later retained profits you might discover in there. So, you need to be careful. So, special purpose super trustee companies, they’re really useful to be trustees of SMSFs. You get the lower fee. If you’ve got any other questions about this or any similar issues, please contact a member of our team. Thanks for watching this edition of It Depends.