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Six member SMSFs finally arrive
The Government’s 2018 Budget proposal to allow Self Managed Superannuation Funds (SMSFs) to have up to 6 members has now been finally passed by both the House of Representatives and the Senate.
The Bill, called the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, is likely to commence on 1 July 2021 (assuming it receives Royal Assent on or before 30 June 2021). If the Bill receives Royal Assent on or after 1 July 2021, then the Bill will commence on 1 October 2021.
The operative provision amends s17A(1) of the Superannuation Industry (Supervision) Act 1993 to change “it (ie the fund) has no more than 5 members” to “it (ie the fund) has no more than 6 members”. There are many consequential changes.
Once the change commences, existing SMSFs will be able, if they so desire, to increase their membership to 6 members and newly established SMSFs will be able to have up to 6 members.
The change only relates to the maximum number of members an SMSF can have. There is no change to the requirement that in general (subject to certain exceptions) each member of an SMSF participate in the management of the SMSF by being a trustee or a director of the corporate trustee of the SMSF.
Why have a 6 member SMSF?
The first comment is that 6 member SMSFs may not be for everyone. Single member SMSFs and dual member SMSFs are likely to remain the most popular type of SMSFs for good reasons.
However 6 member SMSFs may be relevant to situations where a parent or a couple have children who are working part time and wish to accept their children’s SG contributions to minimise the adverse impact of administration fees on relatively small superannuation contributions which would occur in retail or industry funds.
Another situation where a 6 member SMSF may be relevant is where business principles – partners or directors of a small business – wish to acquire business premises on a geared basis. In this situation, the gearing arrangement would be supported by the contribution flow of 6 members rather than only four members. This could be the difference between a maximum concessional contribution inflow, in respect of 2021/22 and subsequent financial years of $165,000 per annum for 6 member fund as against $110,000 per annum for a 4 member fund.
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