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SMSF balances highlight need for TBC

SMSFs transfer balance cap

SMSFs drawing high levels of tax free income in the past have been held as a reason for the introduction of the transfer balance cap in 2017.

The increasing number of SMSFs with large member balances has demonstrated the need for the transfer balance cap, according to the Association of Superannuation Funds of Australia (ASFA), which has pointed to the high level of tax-free income drawn by funds prior to its introduction.

ASFA made the statement as part of a report released yesterday, “Better Retirement Outcomes”, which examined changes in superannuation account balances across genders, ages and income levels.

Pointing to data collected by the ATO from 2011 to 2017, the report noted SMSFs with assets greater than $2 million had grown from 10 per cent in 2011/12 to 16 per cent by 2016/17, while funds with assets greater than $5 million grew from 2 per cent to 3 per cent over the same period.

“The [SMSF assets] information confirms the need for a measure such as the transfer balance cap,” it stated, adding, “In 2016/17, SMSF members with an account balance more than $2 million drew down around $11.7 billion in total in tax-free income.”

It noted many people still had low superannuation balances, but these were likely to increase as superannuants spent more time within the compulsory superannuation system and as the super guarantee reached 12 per cent of earnings.

These balances would, however, be limited by contribution caps, which would restrict the ability to achieve very high balances, with most superannuants being able to reach a comfortable standard of living in retirement through the contribution of their accumulated superannuation.

The report highlighted that high account balances were not uncommon in SMSFs and were likely to be the vehicle by which some superannuants would be able to attain a high fund balance.

“Going forward it would be challenging for an individual to achieve account balances in excess of $2 million given that both concessional and non-concessional contribution caps have been tightened over recent years. However, if an SMSF holds equity in a small business that increases markedly in value, then a relatively high account balance might be achieved in some cases,” it said.

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