The short period between the passing of legislation that allows for the creation of six-member SMSFs and the start of the new financial year will create some delays in their rollout and SMSF trustees should wait before registering new members, an actuary has suggested.
With just over a week between the Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 receiving royal assent and its start date on 1 July, the ATO was not prepared and neither was anyone else, according to Heffron managing director Meg Heffron.
“This legislation appeared to be going nowhere for a really long time and then all of a sudden it was passed just before the end of the financial year,” Heffron said.
“Your client will find that a lot of online forms won’t allow five or six members. While there will always be manual workarounds, it might be worthwhile waiting to make sure that rollovers and contributions aren’t held up unnecessarily.”
Despite the delays, she said a six-member SMSF would offer a solution to the difficulty for funds to extinguish existing reserves as they would simplify the ability to allocate reserves quickly for parents who – due to the four-member limit – have been reluctant to register children.
In addition, she said six-member funds would also benefit families who want to preserve major family assets that were held within an SMSF for legitimate tax purposes.
“The ability for all children to tip some or all of their own superannuation into the fund (and continue to support it with ongoing contributions) may make it possible to keep the asset right where it is, even as the parents draw down their balances via pension payments or die,” she said.
She warned, however, that any SMSF looking to increase to six members should be adopting a corporate trustee structure before taking any other action.
“While we think corporate trustees are a good idea anyway for a host of reasons, they are actually the only solution in many six-member funds as most state laws governing trusts only allow a maximum of four individual trustees,” she said.