‘Tectonic shift’ in SMSFs’ tax-free status after reforms
The sweeping changes brought in with the super reforms may have prompted as much as a 90 per cent jump in accumulation assets, in turn increasing taxes collected from SMSFs to over a billion dollars, according to data from Class.
The latest SMSF Benchmark Report based on data from Class indicates that the introduction of the $1.6 million transfer balance cap and change to the tax status of TRIS accounts have seen almost a quarter of SMSF assets that were tax-free lose that status.
The Class data indicates that the value of assets in accumulation phase increased by 90 per cent from $222 billion in March 2017 to $422 billion at 30 June 2018.
“The 2016 super reform changes have now been largely completed. The net result is a tectonic shift in assets,” the report said.
Class chief executive Kevin Bungard said the forced shift of assets out of pension phase has had dramatic tax implications for SMSFs.
“Even if we assume a modest return of 5 per cent on assets for the 2018 financial year, we would see an uplift in the tax due on SMSF earnings to $3.2 billion — a whopping $1.5 billion jump from 2017,” the report explained.
The report noted that these tax estimates are based on earnings only.
“The tax outcome of a fund also needs to take into account contribution tax, deductible expenses and rebates including franking credits,” the report said.
Given the impact of the 2016 super reforms on tax, Class said it doesn’t consider the proposed Labor policy to further increase the tax burden on self-funded retirees by reducing imputation credits for SMSFs to be appropriate, especially if it disproportionately impacts SMSFs compared to APRA funds.
“If the proposed changes go through, SMSFs will not only be subject to 15 per cent income tax on a higher portion of their assets, now in accumulation, but they may also lose their tax credits on their pension and accumulation assets,” the report said.