27 September 2023

Wealth and self-managed super: “Taxpayer-funded inheritance scheme”

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Cam Wilson* says recent figures from the Australian Taxation Office show how Australia’s richest people are taking advantage of the favourable superannuation tax concessions.

The wealth of Australia’s top self-managed super funds (SMSFs) continues to grow.

There were 32 funds worth more than $100 million in 2020, up from 27 in 2019, new documents reveal.

Information about the top 100 largest SMSFs in the 2019-20 financial years has been released by the Australian Taxation Office (ATO) in response to a Crikey freedom of information request.

The data reveals how Australia’s richest people are taking advantage of the favourable superannuation tax concessions.

Australia’s largest SMSF had $401 million in the 2020 financial year compared with $544 million the year before — each fund is identified only by its position in the top 100, meaning that the top fund may not be the same one as the year before.

The next two largest had $371 million and $273 million in 2020, respectively.

The smallest had $53 million, up from $52 million the year before.

Even despite a significant decrease in the top SMSFs’ holdings, the total money held in the top 100 SMSFs still grew by $9.67 billion to $9.71 billion over that period.

The addition of five SMSFs with more than $100 million in funds in 2020 matched the increase of the year before, when the AFR reported that there were 22 funds with $100 million in the 2018 financial year.

Superannuation funds such as SMSFs pay just a 15 per cent tax rate on earnings.

Australians already drawing their pensions from their fund are exempt from tax until they hit a limit of $1.7 million each year.

There is no limit to the amount that can be held in a superannuation fund.

Last year Michael Rice, described as “Australia’s top actuary”, told the AFR that the government’s 2021 Intergenerational Report showed tax concessions for superannuation contributions and earnings would account for 3 per cent of GDP by 2060.

Capping super funds would ‘only hit wealthiest Australians’

The Grattan Institute’s economy policy program director Brendan Coates said there was no policy justification for the enormous amounts of money held in the top SMSFs.

“It’s another sign that the superannuation system is becoming a taxpayer-funded inheritance scheme,” he said.

“We know that by 2060, one in every $3 of benefit of superannuation will be in the form of a bequest.

“People are putting in hundreds of millions of dollars — there’s no way that they’ll spend that in their retirement.”

The easiest solution would be capping the total amount that individuals can have in their superannuation funds, Coates said, and it would save a significant amount of the federal budget.

“Capping it at two or two and a half million would be enough to generate a retirement income of more than $100,000 a year, which is about twice the median full-time earnings,” he said.

“If you’ve got more than two million in super, you’ve clearly got your own home and more.

“This would only hit the wealthiest Australians.”

Another solution was to tax superannuation earnings like income tax, he said.

The ATO said it keeps a close eye on the top SMSFs to ensure compliance.

“The ATO analyses and monitors the top 100 SMSFs to provide assurance that high-wealth SMSFs have acquired their assets within the regulatory frameworks and are appropriately accessing super tax concessions,” it said.

“When higher risk arrangements such as reported contraventions or non-arm’s length arrangements are identified, compliance action is initiated by the ATO.”

*Cam Wilson is an associate editor at Crikey.

This article first appeared at crikey.com.au.

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