When six is a crowd in an SMSF

First published in the Financial Review on 15 July 2021

Large families may benefit from new rules allowing up to six members of a self-managed super fund, but broadening access can also lead to dysfunction.

From July 1, self-managed superannuation funds are able to increase their membership to six, up from the previous maximum of four.

It has been a long time coming – the increase was first mooted in the 2018 federal budget. But for those funds that choose to take advantage of this legislation, it will bring some discernible benefits.

It’s unlikely the numerical increase will affect many SMSFs since the vast majority have two members and this is unlikely to change. For some larger families, however, it has the potential to make a real difference, giving them additional flexibility and choice.

The change will provide for greater cost efficiencies with set-up costs, levies and audits spread across more members. In addition, an increase in an SMSF’s balance will help cut costs as a percentage of assets.

In some instances, it will remove the need for multiple funds and the duplication in costs that come with it.

This legislation will facilitate family SMSFs, a benefit for those families wanting to help with their children’s financial education or those that simply want to invest in their superannuation as one collective.

This would be particularly germane for family businesses encompassing more than one generation, as well as potentially assisting with estate planning.


A retired couple might have a far more conservative view on asset allocation compared with their children.

Adult children starting out are likely to have low superannuation balances, putting an SMSF out of reach. By being able to join a family SMSF, the costs are more efficient, and the pooling of member funds will allow for greater investment diversification and choice, such as commercial property,
where the minimum investment required is often too high for low-balance funds.

However, while there are clear benefits, SMSFs considering the option of increasing their fund membership should be aware of the pitfalls.

Disputes can occur in two-member funds, so it’s fair to assume the
likelihood of disputation could increase as the number of fund members grows. SMSFs considering this option need to get advice on voting rights and other terms in their trust deed.

Remember, too, all fund members are trustees; none can be excluded. It means all are legally responsible for the fund, so it is critical they all understand their rights, roles and responsibilities.

Divorce proceedings will have the potential to add another layer of complication for larger SMSFs. To begin with, where a member of the SMSF is involved in divorce proceedings there can be increased costs due to additional reporting that can be required.

Forced sale of assets

In addition, trustees may be required to sell assets to allow for superannuation splitting from the property settlement. This could result in taxation liabilities where assets are sold, having an impact on all fund members. In some cases, the outcome can be the forced sale of assets that the other members do not want to sell.

Resolving disputes and issues will not be easy. After all, a member simply can’t be expelled from the fund.

Even in the absence of divorce proceedings, the acquiring and selling of assets has the potential to cause disharmony.

For example, a retired couple might have a far more conservative view on asset allocation compared with their children who are still very much in the accumulation phase.

All fund trustees must remember that all the investment and expenditure decisions they make must be in the best financial interests of all members or beneficiaries of the fund – a statutory obligation.

They will also need to consider if their trust deed needs to be updated to allow for additional members, as well as whether a fund’s investment strategy needs to be reviewed and changed with the addition of new fund members, possibly including different investment strategies for different

As stated, SMSF rules require all members to be trustees and all trustees to be members. Trustees can be either individual trustees or directors of a corporate trustee.

State-based trust laws may cause issues where the SMSF has individual trustees. These limit the maximum number of trustees and do vary across the states and territories. As an alternative, funds should consider the use of a corporate trustee.

Trustees considering expansion of fund members would be well recommended to get specialist SMSF advice.

Opinion piece written by
John Maroney, 
SMSF Association