05/06/2018

One of the key changes from this year’s budget is the Government’s proposal to increase the maximum permitted number of members in a self-managed superannuation fund from 4 to 6 members.  

While this change will not come into effect till 1 July 2019 its worthwhile examining how this change may impact your superannuation fund in the 2019/20 financial year.

Increasing the member limit from 4 to 6 members may have the following beneficial changes for your SMSF:

1.    Allow part-time working family members to join the family SMSF and have their current super balances and future super gearing contributions directed to the family SMSF, which would have otherwise been consumed by fees in industry funds/retail funds.

2.    Make self managed superannuation funds a more favourable asset-holding vehicle for business associates. Under this proposal, all 6 partners could be members of the same SMSF which could be used as the acquisition vehicle for the business premises of the firm.  With 6 members, the total possible concessional contribution inflow could be $150,000 pa as against the current $100,000 pa with only 4 members.

3.    May permit a self managed superannuation fund to satisfy the requirement that the central management of the fund be in Australia if 4 members are Australian residents and 2 members are not Australian residents.

4.    The total tax liability of the self-managed superannuation funds is likely to be greater with 6 members rather than with 4. Consequently, there will be more tax liability of the fund against which franking credits can be refunded.  

A couple of downsides in having 6 members include:

1.    It goes without saying that the more members there are in a fund the greater the challenge there is for all members to manage the fund in their best collective interests.

2.    An increase in the number of members may mean that the fund is more susceptible to the members abusing their position in the fund by improperly and without authorisation removing money from the fund’s bank account for recreational reasons.

3.    Members outvoting other members in the self managed superannuation funds. This may arise in situations where the children may try to outvote the parents in order to achieve their interests at the expense of their parents’ interests.

4.    Having different generations, in possibly different superannuation stages (early accumulation as against retirement stage) may give rise to different priorities as to investment strategies. Different investment priorities can be easily accommodated by the fund having two (or more) investment strategies – one appropriate for early accumulation stage and a second strategy appropriate for retirement stage.  The early accumulation stage strategy could apply to the children’s super interest while the retirement stage strategy could be appropriate for the parents.

5.    Some commentators are saying that the cost of managing the investment portfolios of 6 members would be as high as having the extra members in their own SMSF so no cost benefits may apply.

If you’re thinking of creating a new fund with 6 members or adding further members to an existing fund don’t act without compliance advice from us and a clear idea of how the extra members and their requirements will be accommodated.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or info@townsendslaw.com.au to see how we can assist.