From 4 to 6 SMSF members proposed after 1 July 2019

Following on from the 2018-19 Federal Budget Papers (Budget Papers), the Federal Government has proposed to change the membership rules applying to SMSFs so that from 1 July 2019, an SMSF can have up to 6 members. This article considers the potential implications and opportunities.

 

SMSF allowable membership

Currently, an SMSF must have no more than 4 members[1]. Following the release of the Budget Papers, SMSFs may have up to 6 members from 1 July 2019. The idea behind this change is that it will improve flexibility in the joint management of retirement savings, particularly for larger families.

Parental contributions

A typical example of a family group (being parents and up to 4 children) benefitting from the change is where:

  • an SMSF is established; or
  • an existing SMSF varied,

to permit the entire family group to be members of the same fund.

This would satisfy the maximum membership requirement of 6 members, while also allowing the parents (assuming they each have a greater earning capacity than their children) to use the contributions caps of each child by making contributions on their behalf. It would also allow such a family group to do so using one SMSF, rather than multiple SMSFs under the current law.

High net worth individuals will also be in a position to plan for their children's future by making contributions into a child's super account. The changes will ultimately result in increased funds being deposited and retained in super and therefore taxed concessionally.

Check your trust deed

Before an SMSF can admit additional members, in excess of 4 members, advisors will need to ensure that the SMSF's trust deed permits this. Accordingly, once the proposed change becomes law and an SMSF intends to have more than 4 members, advisors may need to vary the existing trust deed to ensure it allows up to 6 members.

In anticipation of the change becoming law, Cleardocs has changed its SMSF products to allow the SMSF to have as many members as permitted by superannuation law.

Member as trustee

Further, for SMSFs with individual trustees, each member will also need to be appointed as a trustee of the SMSF in accordance with super law. Given that trust law in various States permits a maximum of 4 trustees in a trust – changes to trust law and/or super law may need to occur to support the proposed change. Otherwise a corporate trustee will be required.

In the case of SMSFs with a corporate trustee, the additional members will need to be appointed as directors, and ASIC notified of their appointment.

Minors as members: trustee arrangements

With the increase to 6 members, families are more likely to use SMSFs to admit children.

Minors cannot act as trustees or directors, so the SMSF's records must reflect that the child's parent or guardian is appointed and acts as trustee/director of the trustee 'in place of the member'.

The Cleardocs documents allow these arrangements to be properly recorded.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of topics, such as:

Order related document packages

[1] Section 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) defines a ‘self-managed super fund’ as a fund with fewer than 5 members, amongst other requirements.