I recently read the “red book” - a document that Treasury provided for the returning Gillard government. The red book’s purpose is for Treasury to identify the economic pressure points for the new government. While many of their points were interesting, I found the comments by Treasury on superannuation frustrating. They stated that “the superannuation system is increasingly leaking revenue, with Self-Managed Super Funds now the tax minimisation vehicle of choice”.
With SMSFs finally being ratified as a “largely successful and well-functioning” sector of the superannuation industry by the Cooper Review, it concerns me that the comments from Treasury may have a negative impact on the sector. With many of the misconceptions about SMSFs finally being put to rest, it is perplexing that Treasury would imply that those with SMSFs somehow have access to special rules or are otherwise abusing the system.
Let’s be clear - there are no special tax laws available uniquely to SMSFs that currently enable some sort of “tax rort”. SMSFs access the same tax laws as all types of superannuation funds, albeit that they are generally able to manage and utilise them more effectively than their larger counterparts. Furthermore, to refer to the use of legitimate tax laws that are available to any taxpayer as “leaking revenue” is inflammatory and misleading.
Early in 2010, the Cooper review identified SMSFs as a strong and robust sector of the super industry. After many years of public scrutiny, this greatly improved the perception of SMSFs. Any implication that SMSFs are somehow cheating the government of revenue will only encourage old prejudices and bias to resurface.
Wednesday, October 6, 2010
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I agree with your thoughts. I can imagine that the retail funds are feeling threatened by individuals who have decided to run their own funds and in most cases have done a far better job than the "professionals". I too get annoyed at the way isolated cases of SMSF non compliance are blow way out of proportion when considered within the context of the number and size of funds overall. I also believe there will be a massive shake out in the retail funds sector with the consolidation of funds.
ReplyDeleteA comment from Ivor Ries head of research at EL&C Baillieu Stockbroking is relevant.
ReplyDeleteThe government is going to tighten the rules around SMSFs.
There’s about $400 billion in SMSFs, with the balances growing by $10–15 billion per quarter, with the government taxing returns at 10–15%. Once these funds go into pension mode – as rising numbers will over the next decade – the government won’t get its hands on a single cent.
SMSFs are a hugely popular wealth management tool for Australia’s well-to-do. There is absolutely nothing wrong with the SMSF in principle, but there’s a growing tendency for some extremely wealthy types to push the tax-minimisation benefits of the SMSF to the outer limits of what’s possible.
For example: There’s a certain colourful mining industry identity that used the investment property gearing concessions for SMSFs and bought a $15 million office building to put in his self-managed super fund a couple of months ago. The thinking is that he’s a few years away from retirement and so once the SMSF goes into pension mode, the capital gain on this $15 million office building is going to be tax-exempt.
Everything this individual has done is perfectly legitimate and within the rules of the SMSF regime. Probably this was not the government’s intention when it created the tax concessions and allowed people to set up SMSFs. It’s fast becoming a mechanism for intergenerational wealth transfer without death duties, so it’s going to be very interesting to see what the government does.