Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 256

Is bigger better? Expanding the membership of SMSFs

The 2018 Federal Budget confirmed the maximum number of members in an SMSF is likely to increase from four to six people.

Benefits of a larger membership

An increase in membership could mean greater flexibility, especially for:

  • Small businesses with multiple owners who may wish to pool their super into one fund.
  • Families wanting an intergenerational transfer of assets, especially business property.
  • Limiting the impact of Labor's proposal on franking credit refunds. With more members there’s likely to be a larger pool of assets in one fund. Excess franking credits could be absorbed in the fund and offset against non-franked income and taxable contributions.

At the moment, more than two-thirds of SMSFs have two members, just over 20% have one member and only about 7% of funds have three or four members. This suggests a limited underlying appetite for larger membership funds, and if passed into law, there’s likely to be little impact on the SMSF sector at least initially. It may change if Labor’s policy becomes law.

Downsides of a larger membership

For SMSFs expanding their membership, one possible issue could be increased administrative complexity.

Investment decisions need to cater for a larger pool of members, and this may lead to a more conventional investment mix than otherwise. Recent research by SuperConcepts and the University of Adelaide shows that as the number of fund members increases, investments tend to become less risky and groupthink leads towards more familiar assets such as cash and domestic equities. Funds expanding their membership will need to take care to properly identify and address these behavioural factors.

More members may also mean a more decentralised fund with less desirable outcomes. Think of the scenario of children outvoting their parents on investments, estate planning and other fund matters. The outcome could be undesirable and inequitable.

Six members could also result in more frequent membership changes as some members pass on, or move to their own SMSF or a publicly offered fund, placing a strain on fund administration and associated costs.

Allowing funds to have up to six members further underlines the importance of appointing a corporate trustee for an SMSF. A fund with a corporate trustee would be penalised only once with a breach. In contrast, individual trustees who breach the rules could each be penalised personally for the breach.

Weighing up the pros and cons

The main benefit of a membership increase relates to the pooling of assets that would otherwise be spread more thinly. However, there are potential downsides relating to administrative efficiencies as well as investment decisions and performance.

When considering the best number of members for an SMSF, there’s no one-size-fits-all answer. It will depend on individual circumstances, and a good first step may be advice from a qualified professional.

 

Graeme Colley is the Executive Manager, SMSF Technical and Private Wealth at SuperConcepts, a sponsor of Cuffelinks. The material in this article is for general information and does not consider any individual’s investment objectives.

 

RELATED ARTICLES

Meg on SMSFs: Tips for the last member standing

How SMSFs are investing their money

Meg on SMSFs: why my kids don’t belong to my SMSF… yet

banner

Most viewed in recent weeks

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.