The move towards six member SMSFs will provide greater flexibility and choice without compromising the integrity of the sector, the SMSF Association has said.
In its submission to the Senate Standing Committee on Economics regarding the committee’s inquiry on the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020, the association voiced its support for raising the member limit for SMSFs, saying the change would introduce more flexibility into the current system without posing additional administrative risks for funds.
“While acknowledging any substantial take-up of this option is unlikely – about 93 per cent of SMSFs have only one or two members – we believe increasing membership from four to six will provide additional flexibility and choice without raising any substantial integrity or administration issues for the SMSF sector,” SMSF Association chief executive John Maroney said.
“We believe this is strengthened by the fact that any administrative risks that may currently exist with four member SMSFs have not been detrimental to the sector. It will allow families with five and six members the option to establish an SMSF together or allow the remaining members of a family to join a fund that is an unavailable to larger families who must have separate funds.”
The association also highlighted the additional benefit for larger member funds of being able to pool superannuation balances in one SMSF, thereby cutting down their superannuation fees.
“Pooling superannuation balances in one SMSF can avoid the costs of running separate SMSFs. Furthermore, if the pool of assets is increased in an SMSF through including more members, then the SMSF will become more cost-efficient as the fees reduce as a percentage of the total assets of the fund,” Maroney noted.
While being generally in favour of the move to allow five and six member funds, the association pointed out it would be beneficial for SMSFs to seek specialist advice before increasing the number of members in their fund.
“Our only note of caution is that any SMSF adding extra members should be properly planned and accompanied by specialist SMSF advice to reduce any potential risks,” Maroney said.
“We believe this amendment should be regarded as a non-controversial change to the SMSF sector that promotes more choice and flexibility in the system without posing any significant integrity issues, especially if consumers seek specialist SMSF advice.”
In a separate submission to the Senate Standing Committee on Economics, the Inspector-General of Taxation and Taxation Ombudsman said raising the member limit for SMSFs from four to six would reduce costs and ease the compliance burden for the ATO and for taxpayers.