Author: Emma Partenza, Manager, TAG Financial Services
3 years after it was initially announced in the 2018 Federal Budget, 6 member self-managed superannuation funds are now here.
For many, this has been a long-awaited legislated proposal. However, before we consider expanding a SMSF up to 6 members, we should consider the advantages and disadvantages of doing so.
Advantages
- Greater flexibility, enabling larger families to jointly manage their retirement savings.
- Greater investment purchasing ability.
- Liquidity, especially where investments comprise illiquid assets. Younger family members can contribute, providing the cash flow for their parents who may be in receipt of income streams.
- Business Real Property and succession planning.
- The potential to retain the illiquid investments in super on death.
- Inter-generational wealth transfer possibilities.
- Reduction in operating costs.
- Estate planning.
Disadvantages
- Control issues and decision-making impacts.
- Different investment profiles and/or investment timeframes.
- Risk profiles and tolerances.
- Trust deed not providing for a larger SMSF.
- Administration difficulties with the increased number of individuals involved (including co-ordination of signing annual documents).
- Decision making inefficiencies.
- Parent/guardian to act for minor children.
- Children’s relationships breakdowns.
- Corporate trustee requirement (dependant on state law).
A few other things to note:
- To apply, trust deeds may need to be updated due to many of them potentially having membership limited to less than 5 members.
- s35B SIS Act will be updated to ensure at least half of the directors or half of the individual trustees sign Financial Accounts and Statements due to the increase (currently this is at least 2).
- The Australian Business Registry (ABR) is currently being updated to reflect these new changes to SMSFs. From mid-August 2021, fifth and sixth members of an SMSF can be added.
The increase in member numbers is intended to provide greater flexibility for large families and enable them to jointly manage their retirement savings.
Adding additional members into an SMSF may not be in everyone’s best interests. Be sure to obtain the appropriate advice before moving forward. Everyone will need to be aware of their roles and responsibilities as a trustee.
If you have any questions, please contact us on 03 9886 0800 or via email.
What should you do now?
Become Money Smart
Build your financial knowledge and join our online community where you will receive TAG updates and invites to our Information Sessions.
Meet with us
If you would like to discuss the future of your business further, contact us to arrange a time.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2021. Please do not reproduce without the expressed written consent of the author.