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Blog

Super-sizing your SMSF

Terri Bradford

Prior to the 2018 Federal Budget, the Government announced their intention to increase the maximum number of members permitted within a self managed super fund (SMSF) from four to six. If legislated, the change is due to take effect on 1 July 2019.

Increasing maximum member number to six

There is no doubt an increase to six members can benefit family groups who want to include parents and their children and potentially their children's spouses in a single SMSF. Currently, the only option for family groups is to have multiple SMSFs to accommodate more than four members.

Based on available SMSF member statistics we could assume there's not going to be a big rush towards six-member SMSFs. ATO stats show two-member funds continue to dominate the SMSF sector, representing 70% of SMSFs as at June 30 2016. Single member funds made up 23% and SMSFs with three or four members represented 4%. 

Being able to invite more members into the SMSF will be an attractive strategy for some families. However, there are disadvantages as well that must be considered particularly in relation to member voting:

Advantages

  • Small businesses able to take advantage of investment opportunities (including business property) by pooling funds from more members.
  • Family small businesses may benefit via inter-generational wealth transfer.
  • May allow central management and control requirements to be met where some members are overseas for a period of time, or become non-residents.
  • Additional flexibility in how 'family' SMSFs can be structured for parents and children.
  • Allowing a single SMSF structure may help reduce costs and provide greater scale.
  • May improve the fund's cashflow if more members are contributing vs retiree members.
  • Allowing for flexibility in terms of estate planning strategies and family succession planning.
  • Potential to manage tax strategies over more members (and could be a potential counter to Labor's surplus franking credit policy).

Disadvantages

  • Limits on member numbers for SMSFs are contained in state law so laws will need to be amended to allow for an increase in member numbers (where an SMSF has an Individual Trustee structure). Having a Corporate Trustee will overcome this issue.
  • Trust Deeds may also need updating where they currently reflect four members as maximum.
  • Risk of other trustee/members outvoting original members (usually parents) if voting structure not considered.
  • Potential for disagreement between members on SMSF investment strategy, having separate investment strategies can overcome this issue, however, this could equate to higher administrative costs.
  • Greater risk of Superannuation Industry (Supervision) Act law breaches, including a greater risk of one or more members using the fund for their own benefit rather for the benefit of all members.
  • Potential for discontent between trustees/members in central control and management of SMSF.
  • Administrative issues – particularly in terms of catering for each member's needs and location of each member.
  • Distribution of member benefits on death could become messy if appropriate binding nominations or reversionary pensions are not set in place.

More information

When considering the best number of members for an SMSF there's no one-size-fits-all answer. As always it will depend on individual circumstances. For more information, speak to your Morgans adviser, or contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.