Chartered Accountants Australia and New Zealand (CAANZ) has used its submission to the Financial System Inquiry to advise against criticism of the SMSF sector for taking unfair advantage of tax concessions within the superannuation framework.
“Tax laws relating to superannuation funds are the same regardless of whether the fund is an SMSF or an APRA (Australian Prudential Regulation Authority)-regulated fund,” the professional body said.
“The significant difference between the two types of funds is that SMSFs are able to manage the tax environment far more efficiently than their larger counterparts, particularly around the timing of transactions, sales of assets and capital gains.
“While we are supportive of the inquiry rejecting arguments of SMSFs having tax advantages that APRA funds do not, we also caution against inferring that those setting up an SMSF should not be motivated by tax outcomes.
“Tax concessions underpin the framework of our superannuation system and SMSFs should not be singled out as taking unfair advantage.”
CAANZ also expressed its opinion operating expenses of SMSFs should not cause the inquiry any angst as it was confident trustees were very conscious of the costs involved in running their own funds.
It concluded if SMSF operating costs did become problematic, the system allowed trustees the option of switching back to cheaper APRA-regulated funds at their discretion, meaning no remedial action was needed.
In addition, the accounting body said it did not see the need to consider imposing barriers to entry for SMSFs, such as minimum asset balance requirements, as that sort of move would have an adverse effect on the entire retirement savings system.
“SMSFs are the epitome of engagement in superannuation, with people looking to take control of their retirement savings,” CAANZ said.
“A minimum opening balance … would restrict the ability to set up an SMSF to relatively few people and generally only those who were much older with higher disposable incomes.
“Such limitations could have a significant and detrimental impact on the engagement of individuals with their superannuation.”
However, CAANZ called for a comprehensive review of the ability to borrow within superannuation, partly because some individuals had been encouraged to set up an SMSF for borrowing purposes with no consideration as to whether an SMSF was suitable for them.
In making this call, the professional association rejected arguments a review was unnecessary because of the low number of SMSFs currently employing a limited recourse borrowing arrangement.
“We consider this highlights the timeliness of a review to determine whether borrowing is appropriate or not before it becomes widespread, potentially impacting on funding, housing and security of retirement savings,” CAANZ said.
The accounting body stipulated if the use of gearing in super was eventually banned, it should only be done on a prospective basis.
