The SMSF Association has thrown its weight behind the Federal Government’s proposal to increase the maximum number of members in a self-managed super fund (SMSF) from four to six.
In its submission to the Senate Standing Committee on Economics, the Association says such an increase “will provide additional flexibility and choice in the superannuation system”.
Association CEO John Maroney says: “We think this is an important reform that will give families with five and six members the ability to establish an SMSF together or allow the remaining members of a family to join an SMSF, an option now unavailable to larger families.
“By allowing the pooling of superannuation balances by increasing SMSF members, it means individuals can enjoy the benefits of consolidating assets, increased investment opportunities and flexibility to diversify.
“This often involves small business owners shifting their business premises (known in the Superannuation Industry (Supervision) Act 1993 as “business real property”) to their SMSF. Allowing small business owners to pool their balances together will be an added benefit of increasing SMSF members.
“From an inter-generational perceptive, if children know how their parents’ affairs, finances and superannuation are managed, this familiarity can facilitate improved and more timely estate planning across the generations.
“For example, including adult children in their ageing parents’ SMSF could help when making administrative and investment decisions for the fund.”
Maroney says another benefit of including more members in an SMSF is the potential to increase the fund’s taxable income via contributions and earnings on assets in accumulation phase.
“This would provide extra flexibility for franking credits to be used to offset tax liabilities instead of being paid as refunds – an important consideration with Labor proposing to cancel cash refunds for excess franking credits.
“Although this would result in more consistent treatment of franking credits with most large superannuation funds, it also serves to highlights one of the inequities of any proposal to deny franking credit refunds.”
He says it’s imperative that any decision to increase an SMSF’s membership is properly planned and accompanied by specialist SMSF advice.
“Issues such as elder abuse, complex estate planning disputes and inappropriate investment strategies can occur in SMSFs with up to four members, so the possibility of allowing larger SMSFs could see this happen more often. Accordingly, larger SMSFs should only be used in limited situations and with specialist SMSF advice.
“We believe this amendment should be regarded as a non-controversial change to the SMSF sector that promotes more choice and flexibility in the superannuation system.”