SMSF assets will be raided to repay the federal government’s COVID-19 relief measures, with the $750 billion held within the sector regarded as a viable source of funds, an SMSF technical expert has predicted.
LightYear Docs and I Love SMSF chief executive Grant Abbott said the government will spend at least $1 trillion to support the economy amid the coronavirus pandemic, pushing national debt to much higher than anticipated levels, and it will need to look at ways to repay it sometime in the future.
“At some point in time when we get out of this, someone will have to pay for all these expenses or we may lose our AAA credit rating as a nation, so where is the money going to come from?” Abbott said during a webinar today.
“It will probably be from SMSFs. At the moment they hold $750 billion, and while that has been impacted by the reduction inequity values and commercial and residential real estate, it is too much of a honey pot to be left alone.
He said he believed the pension tax exemption would be removed, but did not regard this as a bad idea as it would result in the entire fund being treated as an accumulation account, and this idea had been promoted a few years ago with the imposition of a flat-rate tax of 10 per cent inside an SMSF.
“Most of us would probably agree with this move as we would not have to worry about pension withdrawals on a year-by-year basis,” he said.
He also said refundable franking credits would once again come under pressure and would most likely be removed altogether.
“Franking credits will be examined, per se, and refundable franking credits will go, and we have seen some comments on this, as it will be very hard to argue not to knock them out when everyone else is bearing pain,” he said.
“I would not be surprised, if like large industry funds, that we also see annual fees and charges increase.”
He said there would be an upside for the SMSF sector as a result of the current pressure on the retail and industry superannuation funds to meet early release requests.
People aged 35 to 45 have seen these funds “smashed” by the level of requests for early release and concerns around cash balances and they will question whether to remain in them or switch to their own SMSF, he said.
