In this guide
With many things in life – like chocolate – one is good and two is even better. But when it comes to running your own SMSF, more may not always be an improvement.
There are no rules in the super laws preventing you from establishing and running more than one SMSF, but it’s important to weigh up carefully the pros and cons before you establish an additional fund.
In some situations there are sensible reasons for deciding on a second fund rather than just adding extra members (up to six members in total) to your existing SMSF, but it’s important to ensure the decision will deliver on what you are aiming to achieve.
Two SMSFs: When could it make sense?
Although running multiple SMSFs sounds like a lot of extra work, there are good reasons some people decide to have more than one fund:
1. When one or more members has a high balance and is retired
If a member of an SMSF is in (or is about to enter) the retirement phase, it can make sense to set up an additional SMSF as a tax-free pension account to hold their high growth or high income-producing assets.
Up to $1.9 million of the retiree’s super assets can be transferred into the tax-free retirement account to support their pension payments, while their remaining super assets are left in the existing SMSF in a taxable accumulation account. (The amount you can transfer into a retirement account, the so-called general transfer balance cap (TBC), increases based on changes in the Consumer Price Index. Your personal TBC may be different from the general TBC amount.)
2. When the SMSF has two or more generations of members
Setting up a second SMSF can also be a suitable strategy for SMSFs with two or more generations of members (such as parents and their adult children).
In this situation, fund members are likely to be in very different stages of their retirement journey, with some members still accumulating retirement savings and some drawing down on their savings pool built up over many years. It can be tricky for SMSF trustees to administer and invest both accumulation and pension accounts in the best interests of members of different ages and investment risk profiles.
Learn more about risk profiles.
More members, or more than one SMSF?
Controlling your own super savings and investment strategy is one of the main reasons Australians cite for choosing to run their own SMSF. But until 30 June 2021, the maximum number of members you could have in an SMSF was four, so this encouraged many families to set up multiple SMSFs to cater for multigeneration wealth accumulation.
As of July 2021, the maximum number of members in an SMSF is six. While this solved the problem for some families seeking greater control of their super investments, there are other – often larger – families who need to consider other options such as multiple SMSFs to manage a retirement savings pool covering multiple generations and extended family members.
Learn about multigenerational SMSFs.
Need to know
In the wake of the 1 July 2017 super changes, there was considerable media discussion about SMSF trustees setting up multiple funds to get around the new rules. These included:
- SMSFs no longer being able to segregate different assets between tax-free pension accounts and taxable accumulation accounts.
- Introduction of the transfer balance cap (TBC), which puts a ceiling on the amount permitted to be transferred into the tax-free retirement phase.
Prior to the introduction of this legislation, the capital gain on the sale of SMSF assets (such as an investment property) could be fully assigned to the fund’s pension accounts to avoid CGT, leaving fund members in the accumulation phase protected from the CGT liability.
In late 2018, the ATO was so concerned about this issue the regulator warned it would closely scrutinise any arrangements where individuals with multiple SMSFs attempted to circumvent the intended reforms. At the time the regulator noted there were around 13,600 trustees with more than one SMSF and 35 trustees with more than five.
Watch out for the tax man
Although the ATO has not released updated statistics on the number of trustees running multiple SMSFs, it remains concerned about the potential for inappropriate use of multiple SMSFs. The concern now is linked to the emergence of retirement planning schemes being sold to retirees and prospective retirees so they can avoid paying super taxes, or illegally access their super savings early.
Through its Super Scheme Smart initiative, the ATO regularly warns SMSF trustees and super professionals about the risks inherent in retirement planning schemes. These arrangements attract severe penalties and trustees can lose their right to act as a trustee and to manage and operate an SMSF.
In recent years, retirement planning schemes attracting ATO attention have included “improper use of multiple SMSFs”, particularly those involving “deliberate use of multiple SMSFs to manipulate tax outcomes”. An example of this behaviour is repeatedly switching the SMSFs between the accumulation and retirement phase to ensure large gains and income are always incurred by assets in the retirement phase.
In February 2024, ATO deputy commissioner Emma Rosenzweig noted 66% of illegal early access behaviour among SMSFs related to individuals entering the system with no genuine intent to run an SMSF. She said newly established SMSFs were more likely to engage in this type of behaviour, with a red flag for potential illegal behaviour being funds making a rollover but failing to lodge their first annual return.
Ongoing ATO concern about the potential misuse of SMSFs means trustees considering establishing multiple SMSFs need to ensure they comply with the super rules at all times and do not act in ways that are likely to attract the attention of the regulator.
