The government has now introduced the bill to increase the SMSF member limit, but with the Labor Party unlikely to support it, the measure is still very much “up in the air”, says a technical expert.
In the lead-up to the federal budget last year, the government announced plans to increase the limit on the number of members allowed in an SMSF from four to six.
The government has now introduced Treasury Laws Amendment (2019 Measures No. 1) Bill 2019 containing the measure to change the SMSF member limit into the House of Representatives.
The bill makes amendments to the SIS Act, ITAA 1997 and Superannuation (Unclaimed Money and Lost Members) Act to increase the maximum number of allowable members in SMSFs from four to six.
SuperConcepts general manager of technical services and education Peter Burgess said that it was not surprising that Treasury has gone straight to introducing this measure into Parliament without first releasing draft legislation or a consultation paper given the time constraints.
The amendments contained in the bill seek to retain the same legislative concessions, exemptions and modifications that currently apply to SMSFs by omitting the term “fewer than 5” and replacing it with the term “fewer than 7” throughout the SIS and Tax Act, he explained.
“In other words, the proposed amendments contained in the bill seek to ensure the continued alignment with the increased maximum number of members for SMSFs,” he said.
“In particular, the amendments update the sign-off requirements in section 35B of the SIS Act to ensure at least half of the directors or individual trustees are still required to sign off the fund accounts and statements.”
Once the bill has been passed, Mr Burgess said that amendments to the SIS Regulations will still be required to accommodate these changes to the act.
“For example, SIS Regulation 13.22C and 13.22D are two regulations which come to mind that will need to be amended,” he said.
Mr Burgess also noted that, in some instances, the number of individual trustees that a trust can have may be limited to less than five or six trustees by state legislation and such rules could prevent all members of a fund with five or six members from being individual trustees.
“The explanatory materials say that in these situations a fund may consider using a corporate trustee to overcome this issue,” he said.
It is still uncertain whether Labor or the minor parties will support this measure, he said.
“In my view, it’s not a measure that the Labor Party would be inclined to support, so whether or not this measure is passed into law before the election is called is still very much up in the air,” Mr Burgess said.
The measure to increase the total SMSF members allowed to six has gained appeal among SMSF members following Labor’s announcement that it would scrap cash refunds for franking credits.
Some trustees plan to invite adult children with accumulation accounts into their fund so that they can increase the taxable income of the fund and offset franking credits.