Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Register

18 July 2026

Home / Caveat Emptor

Why only four members in an SMSF?

Question from Stuart Wilson

I would like to know why SMSF's are limited to less than 5 members. My family has in excess of 4 people in it and when including siblings spouses and children, many, many more than 4.

We currently have 4 separate SMSF's which quadruples the costs and time involved in managing the funds. As a very hands on SMSF trustee, we manage all of the investments and try to complete as much of the accountancy work as we can before handing the accounts to the accountant but the costs are still 4 times what they would be if we could run a single SMSF with more members.

Many articles and companies highlight the minimum investment required in a SMSF to make it viable when considering costs, surely and increase in the number of members allowed would enable more people to benefit from establishing a SMSF.

The restriction on membership seems to be an added cost to those people wanting to establish a SMSF.

Thanks, Stuart Wilson

Reply from Ramani Venkatramani, who is an actuary and between 1996 and 2011, he was a senior executive at ISC /APRA, supervising pension funds.

SMSF's predecessor, 'the excluded fund' was regulated by Insurance and Superannuation Commission with all other complying funds, with the idea that those who wish to control their own retirement savings should be able to do so, with basic requirements being met. It was considered that in order for the control to be properly exercised, the number of members should not exceed 4, as the option of going into the bigger sectors (corporate, industry or retail) was open.

Wallis Committee in 1997 recommended its continuation with the regulation shifting to ATO and a prohibition on trustee remuneration. The limit of 4 was retained.

 

While the number 4 itself is arbitrary, the idea is to keep it small and manageable. The possibilities of lifting the number, or changing the definition (to say, all members of a family regardless of number) were suggested during the Cooper review but were not accepted.

 

As there is no limit on how many SMSFs can be set up by someone, for more than 4, two or more SMSFs can be used under the current limit.

(We have also approached ASIC for a response).

  •   3 December 2013
  • 3
  •      
  •   
3 Comments
Andrew Bloore
December 04, 2013

This has been an issue which has been discussed over and over and the answer has been the same every time, no change to the numbers. In fact the outcome of this restriction has not been a growth in the number of member it has actually seen the number of members on average decline from 15 years ago when it was approximately 2.2 member on average per fund to where it is today at 1.9. That said families need solutions. There are two different issues here, the first being the tax and structural issues of the fund and who can be a member of it (to a maximum of 4, or more technically correct, fewer than 5) and secondly how to simply manage the assets of the funds efficiently.

Having 2 funds does not necessarily mean you need to duplicate the investment process into two funds. For example you can set up a bare trust to hold all of the assets of many funds and invest them from 1 single pool to make the investment management of the assets simple. Say you have 10 members in the family, you obviously need at least 3 fund structures but you can invest via 1 holding or bare trust and simply account for the position in each tax entity in their correct proportion. This really is a simple administration function. Yes you still need 3 tax returns (one for each fund) but it dramatically reduces the administration time from an accounting point of view and simplifies the Trustees lives. Furthermore the SIS Act specifically allows the trustees to appoint an investment manager - say a patriarch, who can be responsible for managing the group assets.

Everyone seems to focus on the issue of the 4 members rather than saying well if we can only have four members how do I make my life as easy as possible within the legislation. What ends up happening is each fund ends up with different assets and one person trying to work of what goes where. There are simple solutions to all this. As always go to a superannuation professional administrator and ask how to make the fund work for you, not the other way around.

Christopher Dodson
January 11, 2017

Hi Andrew,

I am interested in your comment as I do not believe it is possible for related SMSF's to invest in a bare trust or unit trust which holds anything other than property and cash.

Are you able to provide references on how this can be completed?

Philip La Greca
December 19, 2013

The other rationale for the limit relates to how the decision-making process works in the multi-member funds and the number of members that could be overridden.

The SIS law does not specify so the general principle is a majority of trustees/directors rules. Thus with a two member fund both must agree, for a three member fund then two out of three and for a four member fund three out of four. In these cases then only ever one person's wishes are not met. If we take this to five members however then we end up with three out of five so more members are not satisfied with the outcome.

This would require a statutory basis for decision-making and anything else than a unanimous decision would always result in some low cap of member numbers. Even 75% for a 10-member fund would mean two outvoted members.

If you consider how difficult it is to get 5 people to agree on how to split a lunch bill consider the outcomes when you are talking about peoples retirement savings.

 

Leave a Comment:

RELATED ARTICLES

Lending policies can spoil good SMSF strategies

Meg on SMSFs: Winding up market linked pensions with care

Does a declaration of trust satisfy SMSF separation of asset regulations?

Firstlinks is sponsored by:
banner

Most viewed in recent weeks

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

Planning

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Lithium's latest drop and what it means for ASX investors

Lithium's latest sell-off has punished ASX miners as prices remain hostage to shifting expectations. The key challenge is navigating a market prone to extreme volatility despite a strong case for the long-term demand outlook.

Investment strategies

CGT reform and fund turnover: who really feels the impact?

The implications of CGT reform are far and wide. As the 50% discount gives way to inflation indexation, turnover and return profiles may become critical drivers of after-tax performance. Some strategies face a far greater hit.

Superannuation

Super was built for a very different Australia

Our retirement system was built around assumptions that no longer hold. Lower homeownership, longer lifespans and changing expectations are exposing cracks that policymakers and super funds need to address.

Retirement

Retirement in reality - 4 months in

Many people spend years planning financially for retirement but little time preparing for what comes next. Four months in, here are the surprising lessons I've learnt on finding purpose, social connection and healthy habits.

Investment strategies

After the Budget, Australia needs its own definition of quality

As tax reforms reshape investment incentives, investors should rethink what quality investing means in the uniquely concentrated Australian market, where traditional frameworks may not translate as effectively.

Datacenters are the new shale oil

Why are tech giants pouring billions into datacentres when the economics look questionable? The most dangerous words in investing may be: "everyone else is doing it". Today's AI boom has striking parallels with the shale bust.

Sponsors

Alliances

Site Map

About Firstlinks

© 2026 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.