CAANZ

Compliance consideration for six-member funds

TONY NEGLINE is superannuation leader at Chartered Accountants Australia and New Zealand. As has been well publicised, at the end of June the federal government had some great legislative wins from a superannuation perspective.

In broad terms, the three wins are permitting six-member SMSFs and small Australian Prudential Regulation Authority funds, allowing greater contribution flexibility for those aged at least 65 but under 70 and the Your Future, Your Super suite of policies.

Given the current Senate make-up, these wins are never easy to fashion. The result for the government was probably made even sweeter because leading up to the end of June there were noises being made that it didn’t have the votes for the Your Future, Your Super changes and would need to agree to some substantial amendments.

Six-member SMSFs Debate will always rage about the merits of having other family members or unrelated colleagues, friends and acquaintances in the same super fund. With these types of arrangements, I think everything will work out fine or it will end up being a disaster. As none of us can truly see the future, we never know how each particular journey will conclude. It might be a good way to make life more exciting.

Six-member SMSFs will allow larger families to run fewer super funds. For example, suppose a couple have four children. Under the old four-member fund rule, they would have had to run at least two SMSFs if they wanted their super to be held within the family unit.

Now under the six-member rule they can achieve their collective super arrangement with only one super fund. This will clearly save money in terms of administrative costs, lodgement, accounting, audit, actuarial and legal fees.

It has long been considered best practice that super funds should have a corporate trustee. SMSFs with more than four members may need to have a corporate trustee because of limitations contained in all the state and territory trust acts.

But legal experts differ as to the scope of these limitations. Let’s take two examples. Firstly, Michael Evans, barrister and author of Equity and Trusts. In his book’s third edition, Evans says: “Under the general law, there is no restriction on the number of persons who might be appointed trustees. For private trusts there is a statutory limit of four as the number of persons who can be appointed trustees of the one trust in all states, except South Australia and Tasmania.”

He notes in a footnote there appears to be no limit on the number of trustees in the Northern Territory.

Secondly, let’s consider Dyson Heydon QC, formerly of the High Court, and Justice Mark Leeming of the New South Wales Court of Appeal, authors of the eighth edition of Jacob’s Law of Trusts. In that book, they say: “If new trustees are appointed under a power given by the trust instrument, it will usually depend upon the terms of the instrument whether the number of trustees may be increased or diminished. In Queensland … the instrument is subordinated to a statutory provision limiting the number of trustees to four (in the case of a trust created after the date of assent of the act). In Victoria … the effect [of the relevant provisions] is similar. However at least in New South Wales, South Australia and Tasmania, statute does not interfere with the expressed intentions of the creator of the trust, but applies only if and as far as contrary intention is not expressed in the instrument, if any, creating the trust, and has effect subject to the terms of that instrument and to the provisions therein contained. The acts of the other jurisdictions [WA and NT] contain a similar provision.”

After this explanation, Heydon and Lemming then go on to explain all the twists and turns in the various trustee acts in additional rules that might apply.

In short, the rules in this area do not appear to be simple.

To ensure no errors are made, it may be essential to receive specialist legal advice, especially for small super funds that existed before July 2021.

In any case, many SMSF trust deeds probably have hardwired into their terms that there can be no more than four members, and hence no more than four individual trustees, in the fund. Clearly this would need to be amended before adding additional members/trustees.

Out of simplicity it may be better for funds with more than four members to always have a corporate trustee.