With the recent poor sharemarket performance it is only natural for investors to be fearful and think about switching assets away from shares into cash.

However, by moving now from shares into cash is shortsighted and doesn’t take into account the big picture and long-term benefits of investing in shares.

In general, there are two choices as to how to appoint a trustee to your super fund: Individual trustees; or Company trustee (with members acting as directors).

I am often asked by clients to outline the main differences between these two choices.  There are benefits of both, and I have outlined below some issues you should consider when making a decision.

Approximately 65% of SMSFs have individual trustees, and, as most funds have husband and wife as members, then it is these people that act as the trustees of the fund. The balance mainly use a Pty Ltd company as trustee, and appoint themselves as directors of the company.

Often, when a fund has only one member, a company trustee is the only choice, as the law does not allow a single member fund to have a single individual as trustee.

Although a two, three or four member fund could use a company as trustee, the choice to use individuals is often made to avoid extra costs, as there are additional fees associated with setting up and running a company. However, there are significant advantages in using a company, which may end up costing less in the longer term, as indicated below.

The ATO have released a draft ruling which addresses some major concerns surrounding the use of limited recourse borrowings by SMSFs. Essentially the following changes have been proposed to commence from 7th July 2010;

• improvements to property will be allowed provided they are not funded from borrowings and do not fundamentally change the nature of the asset
• a single asset may include multiple titles if a single structure is built across all titles. 

Since 7th July 2010 the ATO have regarded improvements, not repairs, funded by either a borrowing or other resources as a contravention. Though the prohibition on using loan funds for improvements remains, improvements which are funded from Fund resources or insurance payouts will be allowed provided they do not change the fundamental nature of the asset.