Two SMSFs can be merged to create a single six-member fund but the process will be limited by underlying assets, particularly property, within the funds, according to an SMSF technical expert.
Heffron head of SMSF technical and education services Lyn Formica said with changes in the law to allow the creation of six-member funds it was possible for one SMSF to be formed out of two, but any transfer of assets would fall under current restrictions.
“If we have two SMSFs and want to move their assets and combine them into one fund, keep in mind the two funds will be related parties to each other,” Formica said during a recent webinar.
“We will need to make sure we can satisfy any rules where a fund is not allowed to acquire assets from a related party, but they are allowed to acquire listed shares, listed securities and units in widely held unit trusts. Managed funds would qualify as widely held unit trusts, so those things can be transferred from one fund to another.”
She said property could also be transferred, but only where it was business real property.
“The only restriction will be residential property, which cannot be moved to another fund unless we are doing so for a family law splitting purpose. Business real property can be moved across provided it meets the transfer requirements,” she noted.
She pointed out no capital gains tax (CGT) changes were made in regards to six-member funds and none would apply when combining two funds.
“The only CGT rollover would be if someone was moving an asset as a requirement under family law proceedings and where a couple has separated,” she said.
“The six-member changes did not incorporate any extra CGT rollovers like we have when large funds combine and none of those concessions were provided with the six-member rule.”
