Government announces plans to expand SMSF member limit
With the Turnbull government announcing it will increase the limit on the number of members allowed in an SMSF, one expert has warned this could introduce the risk of children outvoting their parents in a fund.
In an address at the SMSF Expo in Melbourne, Minister for Revenue and Financial Services Kelly O’Dwyer stated that it will expand the limit on the maximum number of members in an SMSF from four to six.
Ms O’Dwyer said the change will allow for greater flexibility and given the growth in the sector to date, will “ensure SMSFs remain compelling retirement savings vehicles into the future”.
Speaking to SMSF Adviser, SuperConcepts general manager of technical services and education Peter Burgess said increasing the member limit will provide more flexibility and from that perspective is a welcome change.
“[However], given the vast majority of SMSFs, over 90 per cent according to the ATO statistics, only have one or two members, it’s hardly going to open the floodgates,” he said.
“The option of having five or six members will be of benefit to some assuming they can set different investment strategies for different age groups and mitigate the risk of disputes that might arise if the kids can outvote their parents.”
Mr Burgess said a corporate trustee structure would likely be the only option for these funds given the higher likelihood of membership changes and the fact that ATO administration penalties are levied on an individual trustee basis.
“Perhaps it’s a good opportunity to make the use of a corporate trustee compulsory for all SMSFs,” he said.
SMSF Association chief executive John Maroney said expanding the definition of an SMSF to a fund with a maximum of six members will provide flexibility in how SMSFs can be structured.
“This will especially benefit family groups who want to include parents and their children and potentially their children’s spouses in a single SMSF,” said Mr Maroney.
“Currently, family groups may need to have multiple SMSFs to accommodate more than four members, so this proposal will allow a single SMSF for the group, bringing the benefits of reduced costs and greater scale.”
Mr Maroney said in some states, trust law will have to be amended to allow SMSF trustees to take advantage of this decision to allow SMSFS to have up to six members.
“SMSFs can bypass this limitation by having a corporate trustee, where each SMSF member is a director of the corporate trustee,” said Mr Maroney.
Ms O’Dwyer also announced that SuperStream will be extended to include SMSF rollovers.
“This reform will allow SMSF members to initiate and receive rollovers electronically between an APRA fund and their SMSF,” she said
“This will reduce compliance costs, expedite the rollover process and further improve the integrity of the super system.”
Ms O’Dwyer said the ATO will work with industry on the design and implementation of this important reform which is expected to commence late next year.
“We will have some further positive announcements in the Budget,” she said.
While the government she said remains wholly committed to seeing through our 2016 reform package, she stated that the Turnbull government had no intention of making any further changes to the taxation of super.
Mr Maroney said the announcement to include SMSF rollovers in Superstream was also positive for the industry.
“This change to the mechanics of the super system is important to SMSFs. Currently, SMSFs can experience lengthy delays in receiving rollovers from large superannuation funds, so this change will ensure rollovers are made in a timely manner, enhancing choice and efficiency in the superannuation system,” he said.
“This will minimise friction between various parts of the super system and also reduce the time it takes for SMSF members to access their retirement savings held in large funds.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.