In the 2018 Federal Budget the Government proposed increasing the limit on the maximum allowable number of members in an SMSF (and a Small Apra Fund or SAF) from four to six members. This change is proposed to take effect from 1 July 2019. Currently the maximum allowable number of members is four with the clear majority of SMSFs having either one or two members only.
In 2015/16, 3.7% of all SMSFs had four members and 3.6% of SMSFs had three members.1 In number terms this means that of the 568,315 SMSFs at 30 June 2016, 21,027 had four members and 20,459 had three members. Extrapolating these numbers out one would expect that a similar low percentage of total SMSFs will adopt the proposal (should it become law) and increase their membership numbers to five or six.
Currently, most three or four-member SMSFs have been established mainly:
- To allow all members a family to be in the same SMSF (for example husband, wife and two children); and/or
- To pool Superannuation monies to purchase a large asset such as property.
It is for these two reasons that many SMSFs will be attracted to this increase in fund member numbers. It will allow families with three or four children to incorporate their entire family into the SMSF. Over recent years we have seen a gradual reduction in both the concessional and non-concessional contribution caps. This limits the ability of SMSF members to accumulate funds to purchase large assets such as property. Hence the attractiveness of multiple people pooling superannuation monies to purchase such assets as commercial or residential property.
An overarching advantage to an SMSF with multiple members is the lowering of the expenses paid by each fund member. Certain expenses in a SMSF are fixed regardless of the number of members such as the requirement for annual audited accounts. By pooling superannuation monies in one SMSF members can avoid the costs of running separate SMSFs.
Increasing the number of members in a SMSF is not without potential downsides
Key areas of concern would be the larger number of members and agreeing between the members on how decisions are made such as investments and who has control over the access to each investment (e.g. online banking). Further estate planning considerations upon the death of a member will need to be well covered to avoid any disputes on the death of one member that may affect the rest of the fund’s assets.
This increase of maximum members is only proposed at this time, but should it come into law on 1 July 2019, it will provide a small but significant number of SMSFs with the ability to increase the number of members.
Stephen Hogg
Head of SMSF
Omniwealth
T: 02 9112 4329
Stephen.Hogg@omniwealth.com.au
www.omniwealth.com.au