Advanced search

Top Navigation

Six member SMSFs –– the pros and cons

Six member SMSFs –– the pros and cons


The prospect of six member SMSFs has moved a step further when the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 (‘Bill’) was recently introduced into Parliament. If the Bill is finalised as law in November, the increase to the maximum allowable number of members for an SMSF could commence as early as 1 January 2021.

Interestingly, the ATO’s latest statistics show that only around 7% of total SMSFs (currently approximately 600,000) have more than two members (ie, around 42,000 SMSFs). The ATO statistics also confirm that around 23% of SMSFs only have one member and 70% have two members. Given these numbers, there may not be a large uptake of funds seeking to increase their member numbers above the current maximum cap of four members.

The Bill proposes to amend a variety of acts including the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’) to increase the maximum number of allowable members in an SMSF from four to six.

Naturally, there are a range of advantages and disadvantages that need to be carefully considered before adding additional members to an SMSF. This article focuses on the advantages and disadvantages and how the DBA Lawyers’ SMSF deed manages additional members.

Accounts and statements

The Bill amends the current requirement for signing off an SMSF’s accounts and statements each financial year. The amendment provides that when there are more than two directors of a corporate trustee or individual trustees, the accounts and statements must be signed off by at least half of the directors of a corporate trustee or, if applicable, at least half the number of individual trustees. For example, if there were six members in an SMSF, the annual financial statements should, subject to any stricter criteria specified in the SMSF deed, be signed off by at least three members (in their trustee/director capacity).

For this reason, the quality of the constitution for a corporate trustee and the quality of the SMSF deed become far more important when an SMSF can have up to six members. For example, some SMSF deeds give the power to appoint or remove trustees either to the majority of trustees or the majority of members by headcount. We outline an example below where headcount may be inappropriate as typically in a family fund, mum and dad have the largest account balances.

We also strongly recommend that a corporate trustee be used due to the many advantages that a special purpose company provides. For more reading click here. Thus, for simplicity, we will refer to directors of an SMSF trustee company from now on rather than also referring to individual trustees as well.

Quality of documentation

As noted above, careful consideration should be given to the quality of the documentation used. In particular, clients should check to ensure that all decision-making powers and other rules are designed appropriately to reflect additional persons being admitted to an SMSF.

The trustee–members rules in s 17A of the SISA generally require that all members are also directors of the corporate trustee and vice-versa. Therefore, typically admitting new members will require these members to be appointed as directors of the trustee company first, provided they have attained 18 years. For a child under 18 years, their parent or guardian represents them at the trustee-level until they attain 18 and are then eligible to be appointed as a director.

However, some families prefer that the parents remain in control of the SMSF and remain as the only directors of the corporate trustee and their children do not become directors. To achieve this, adult children may appoint their parents as their attorney under an enduring power of attorney to represent them at the trustee-level. This allows the child to be admitted as a member (or, if they have recently attained 18 years to remains as a member) without the onerous responsibility and associated risks of being an SMSF trustee/director.

Not all families agree with this philosophy and some like to empower their children and get them more involved and taking greater responsibility and consider it better to appoint their children as directors to have an appropriate level of input.

Naturally, the addition of new members who are also appointed as a director, may complicate decision-making and paperwork at the trustee-level. For example, decision-making in many standard SMSF deeds and company constitutions depends on a majority based head-count of directors. This may provide a member with a low account balance with an equal vote.

In contrast, members with the large account balances generally prefer decision-making to reflect the members’ respective account balances in the fund as a proportion of the total fund balance.

EXAMPLEMum and dad between them may hold in excess of 90% of the fund balance and their four children may only hold 10% of the fund balance. If the voting reflected the number of members, the four children could outvote mum and dad. However, if the voting reflects account balances, mum and dad would have 90% of the vote and could not be outvoted by their children who only hold 10% of the fund’s total fund balance.

The DBA Lawyers’ SMSF deed reflects member account balances in relation to trustee-decisions. Moreover, where a corporate trustee is appointed, which we strongly recommend, the constitution is the relevant document that governs the decision-making process. This is where a quality constitution is required as special provisions are required to ensure the directors’ votes are not simply a function of head count. Careful consideration is required as to whether a new member is provided any shares in the trustee company. Further, the class of shares and the rights and obligations relating to each share class should be carefully considered to provide the mum and dad clients discussed in the example above, the ability, if desired, to control 90% of each directors’ and shareholders’ decisions. The DBA Lawyers’ constitution facilitates the ability to provide this type of control and includes a guardian share that provides a right of veto in relation to each director and shareholder decision.

Alternatively, as discussed above, adult children may consider appointing their parents as their attorneys to represent them at the trustee-level via their enduring powers of attorney. This may assist in ensuring that the parents maintain greater control of the fund and alleviates the children from administrative and other responsibilities.

Advantages of larger member funds

There may be certain advantages with having additional members in an SMSF as this may provide for greater flexibility in terms of investments, ie, by enlarging the fund’s investment pool. This may be an advantage where the parents have attained their $1.6 million total superannuation balance (‘TSB’) and are precluded from making further non-concessional contributions.

At times SMSFs need extra cash flow but the $1.6 million TSB limit precludes members making more non-concessional contributions. Admitting further members may provide much needed cash flow to the fund to make improvements on property owned by that SMSF or to take advantage of other investment opportunities that are available to that SMSF.

Larger families may also welcome the increased limit as six members would allow mum, dad and up to four children to be involved in the same SMSF. In contrast, the current limit only allows up to two children in addition to mum and dad.

With added members, there is also the potential to accumulate more in superannuation overall as each member also obtains their own contribution limits.

While there are some advantages to the ability of having a larger fund, naturally, on the flip side, there are some disadvantages.

Disadvantages of larger member funds

SMSFs can work very well when all the members agree and get along. However, the SMSF structure is not always well-suited to managing conflict over time and admitting additional members to an SMSF gives rise to a significant risk of there being more disputes and conflicts over time.

Separation and family law risk is also an important consideration. With the divorce rate in Australia being well above 40%, many families may experience separation or divorce where the retirement savings in the SMSF are more likely to become entangled in messy legal disputes in the context of new members being admitted.

The author has, for example, been involved in a family law dispute where the parents’ SMSF included their two sons, one of whom was going through the divorce process. The soon to be ex-daughter in law was claiming a proportionate share of the $1 million plus reserves in the fund in addition to a substantial share of the son’s account balance. The son had only recently been admitted to the fund and his balance had not contributed towards the fund’s reserves. After some negotiation, the ex-daughter in law ended up getting a share of the reserves. The poor-quality documentation in this case did not assist the family’s cause.

Additionally, we have witnessed an increasing number of death benefit disputes in recent years in relation to who should be paid the deceased member’s death benefit. Unless a death benefit is carefully managed this could easily become problematic as families and relationships become strained and further disputes arise. The increasing number of recent disputes have highlighted that even if there is a binding death benefit nomination (‘BDBN’) in place there might be a vexatious litigant and several recent BDBN disputes related to such matters as whether the change of trustee was effective or whether an attorney acting under an enduring power of attorney could make or change a BDBN.

Naturally, succession planning and the future control of an SMSF become ever more important given that more people are being involved with fund management. Making sure a person’s wishes are properly documented becomes critical for those who do not have confidence in trusting the remaining directors who control the fund. In this regard, the DBA company constitution provides for a successor director to help manage this risk in relation to loss of capacity and death. For more reading on successor directors click here.

Before admitting any member, you should always check whether they are a disqualified person. Any person previously convicted of an offence involving dishonesty is disqualified, wherever and whenever that offence was committed. It is surprising how many have a ‘black sheep’ in their family.

Other considerations

Most states and territories, including New South Wales, Victoria, Australian Capital Territory, Western Australia and Queensland only allow for up to four individual trustees. Accordingly, a corporate trustee is mandatory for funds that seek to have more than four members in these jurisdictions. As also discussed above, a corporate trustee for an SMSF is strongly recommended in any event and for every jurisdiction in Australia. For more information as to why a sole purpose corporate trustee is the best choice click here.

Further, some SMSF deeds are hard wired and only allow a maximum of four members and will need varying before more than four members can be allowed. Note, however, that the DBA Lawyers’ SMSF deed does not require variation and already caters for this change (ie, there is no hard wiring to ‘no more than five members’).

The Advantages of the DBA Lawyers’ SMSF Deed

The DBA Lawyers’ SMSF deed helps to overcome a range of other issues that may be faced by SMSFs seeking to admit additional members. For example, our SMSF deed contains express provision to admit members on a conditional basis. This allows a ‘conditional’ member to be rolled over to another superannuation fund or paid out (if they have satisfied a relevant condition of release) upon the occurrence of a specific event or upon a specified time, eg, there is a material dispute or a member divorces or separates from their spouse. For SMSFs that may include members with a second spouse and blended families, the ability to remove a member on certain specified events minimises unnecessary disputes. For more reading on conditional membership click here.

The DBA Lawyers’ SMSF deed also has express power for the SMSF trustee to exclude certain beneficiaries with the consent of the requisite number of members. The Federal Court in Kafataris v The Deputy Commissioner of Taxation [2008] FCA 1454 counted at least 21 beneficiaries of a single member fund. Having power to exclude potential beneficiaries can assist in minimising the risk of paying out a death benefit payment where there is no binding death benefit nomination.

Non-family members

SMSFs are generally only for a member, their spouse and children. SMSFs are not however appropriate for others to combine in a fund such a friends and colleagues, etc. In particular, if a member runs a business, that member generally cannot have non-family employees join the SMSF. It is generally advisable in any event to have them join a public offer fund or set up their own SMSF rather than joining the business owner’s SMSF. This limits the circumstances in which conflicts may occur between employees and the family


On balance, the ability to have up to six members enhances flexibility. However, in the absence of appropriate succession planning and having the right documentation in place, it could result in increased risks of major problems occurring, eg, due to dysfunctional decision-making, disputes and family law risk. Accordingly, expert advice should be sought to ensure the SMSF trustees/directors and members are informed and aware of the advantages and disadvantages before proceeding.

Related articles

*                        *                       *

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

Note: DBA Lawyers hold regular SMSF CPD online training. For more details or to register, visit or call 03 9092 9400. 

By Daniel Butler, Director ([email protected]) and William Fettes, Senior Associate ([email protected]) 


5 October 2020

Print Friendly, PDF & Email