Date posted: 15/07/2021 5 min read

SMSFs with more than four members may need corporate trustee

State/Territory legislation may restrict the number of individual trustees a SMSF can have

In Brief

  • Five or six member small super funds permitted from 1 July 2021
  • The rules permitting more than four individual trustees varies between jurisdictions
  • It might be easier and simpler for 5 or 6 member small super funds to use a corporate trustee

From 1 July 2021, Self Managed Super Funds and Small APRA Funds (“small super funds”) will be permitted to have up to six members.

This is a significant reform and overturns government policy put in place in 1994 – that is, 27 years ago.

Why will some welcome larger small super funds?

Six member small super funds 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 funds 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 fees, accounting, audit, actuarial and legal fees.

Why will some dismiss larger small super funds?

A wide range of superannuation experts commonly express the view that parents should not be in the same small super fund as their children. They argue that this is a recipe for disaster because family disagreements can cause significant problems with the operation of a small super fund. Complications can also arise if parents separate or children enter or leave relationships.

These experts don’t like parents and children in the same small super fund regardless of how many members a fund is permitted to have.

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

SMSF with more than four members may need a corporate trustee

It has long been considered best practice that super funds should have a corporate trustee.

Small super funds with more than four members may need to have a corporate trustee because of limitations contained in all the State and Territory Trust and Trustee Acts.

But there is a difference between legal experts as to the scope of these limitations.  Let’s take two examples:

  • Michael Evans (Barrister):

“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 whop can be appointed trustees of the one trust in all states, except South Australia and Tasmania” (Equity and Trusts, LexisNexis Butterworths, 3rd Edition, 2012, p553).

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

  • Dyson Heydon QC and Hon Justice Mark Leeming: 

In Jacob’s Law of Trusts (LexisNexis Butterworths, 8th edition, 2016) they say the following: 

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. (p. 296 – 297)

After this explanation Heydon and Lemming then 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 hard-wired 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.

As mentioned above, out of simplicity it may be better for small super funds with more than four members to always have a corporate trustee.