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A Beginner's Guide to 6-member SMSFs

Got more than 4 people in your family? Then we know the inconvenience you may have been experiencing when it comes to your Self-Managed Super Funds. In this article, our SMSF experts explain what this new legislation means for larger families.

Got more than 4 people in your family? Then we know the inconvenience you may have been experiencing when it comes to your Self-Managed Super Funds. But, on 22 June 2021, both Houses of Parliament passed legislation permitting 6-member Self-Managed Super Funds from 1 July 2021. The new legislation received Royal Assent along with two other legislations: 

  1. The 3-year non-concessional contribution in advance rule was made available for those under the age of 67 from 1 July 2020 
  2. COVID-19 re-contributions made from 1 July 2021 until 30 June 2030 will not count towards the non-concessional contribution caps and cannot be claimed as a tax deduction 

Prior to the passing of this legislation, SMSFs were limited to 4 members. This meant that larger families who wanted to utilise a Self-Managed Super Fund were forced to either create an additional SMSF to cater for all of their family members, or place their superannuation into a Retail or Industry Super Fund. A 6-member SMSF allows families to stay together in the one super fund, make joint investment decisions, and helps build the family’s nest egg in the one place. 

Sounds great, right? But there are a few things to consider when it comes to your superannuation strategy, so we wanted to help you understand whether a 6-member self-managed superannuation fund is the right choice for you and your family. 

The Main Advantages to a 6-Member SMSF 

The most obvious advantage to this legislation is that families with 4-6 members will be kept in the same superannuation fund and will not need to open a second SMSF account. This results in a reduction in operating costs and provides larger families with greater investment flexibility. 

In the event that one or more of the members from the 6-member SMSF travel overseas for a prolonged period of time, there is a greater likelihood that the SMSF will be able to qualify as an Australian superannuation fund, and allows the family to save in administration costs. 

A Self-Managed Super Fund is highly beneficial in situations where the whole family respects each other’s views and opinions, sees eye to eye, and understands the purpose of superannuation and their responsibilities within the fund. 

The Main Disadvantages to a 6-Member SMSF 

While there are many advantages to a 6-member SMSF, you should also take note of the disadvantages. There may be situations where members disagree on investment choices, and having 6 members with differing opinions can result in reduced efficiencies and family conflict. Furthermore, there may also be difficulties relating to the overall administration, control and management of the fund – such as the trustees and members having the power to both remove and appoint trustees.

What Should You Consider Before Taking Out a 6-Member SMSF? 

After weighing up the advantages and disadvantages of a 6-member SMSF, we recommend also taking note of the following: 

Trustee Structure in an SMSF 

Each individual added into the SMSF with legal capacity must be appointed as trustees of the fund, or directors (if there is a corporate trustee). In situations where children under the age of 18 are included in the 6-member SMSF structures, parents will assume the position of the acting fund trustee on their behalf. 

When signing certain fund and regulatory documents, at least 50% of the trustees and/or directors (where applicable) of the fund are required to sign. 

Investing in an SMSF 

As opposed to an industry or retail super fund, a self-managed super fund gives you and the other members of your fund the freedom to choose what you invest in. To maximise your investment, all members within the SMSF should consider the long-term perspective of the fund and agree on a diversified range of assets. 

In situations where a family has an involvement in a small business, the family can then have a business property in the fund. The property can then be leased back to the family business and utilise the superannuation savings effectively. This has long-term tax-effective benefits in situations where the children of the fund choose to continue with the business and retain the property in the fund as an intergenerational transfer of assets from their parents. 

While you and your family have access to a wider range of investment options, it is important to take note of any restrictions on investments to avoid any penalties. 

Leaving the SMSF Fund

There are many reasons an individual may choose to leave a 6-member SMSF (including divorce and separation). As children grow up and become legally responsible for their own decisions, they can make the decision to leave the family SMSF and move their benefits over into their own superannuation fund. 

We recommend preparing for and considering the possibility of a family member leaving your SMSF when planning your family SMSF in the first place. While good planning and adequate preparation can help to streamline the process, we still suggest seeking professional advice from a licensed financial advisor to ensure that nothing is overlooked – any mistakes can be both difficult and costly to fix. 

Appointing a Corporate Trustee 

In order to meet the State Trustee Legislation, a fund with more than four members requires a corporate trustee to be appointed. A corporate trustee involves a company acting as a trustee for the fund and requires each member of the fund to be a director of the corporate trustee, and each director of the corporate trustee to be a member of the fund. It’s important to note that once a person stops being a member of the SMSF, they also surrender their position as a director of the corporate trustee.                                          

A corporate trustee can help to simplify the recording and registering of assets, and ensure more efficient fund administration. 

Ready to Explore a 6-Member SMSF for Your Family?

As you can see, there are many great reasons to consider switching over to a 6-member SMSF or setting one up if you have been waiting for a better solution. But you’ll need to chat to an SMSF specialist or financial advisor to feel confident you’re making the right decision for you and your family. Ultimately, 6-member SMSFs provide a lot more flexibility for people, which we’re happy about. But it's alway important to assess each person’s unique situation. Feel free to reach out to one of our SMSF financial advisors for a free chat about your goals.

Please note that any information provided in this article is general in nature and should not be taken as advice. Jumping into the deep end without properly considering the pros and cons of a 6-member SMSF could have devastating impacts on your family’s nest egg. When considering if a 6-member self-managed super fund is the right choice for you and your family, we recommend seeking advice from one of our licensed Melbourne-based financial advisors

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