ATO performance calculation change welcomed

ATO SMSF performance

The ATO’s decision to alter its SMSF investment performance calculation method to align with that used by APRA-regulated funds has been welcomed by the SMSF Association.

Adjustments to the calculation of SMSF performance by the ATO to further align it with the methodology used to calculate returns for Australian Prudential Regulation Authority (APRA)-regulated funds have been welcomed by the SMSF Association, a week after it released its own performance data.

Association chief executive John Maroney said the ATO’s move, which was documented in its recently released 2019/20 SMSF statistical overview, would minimise the gap between both organisations’ performance calculation methods and generate a more accurate depiction of SMSF investment performances.

“The ATO’s decision to make these important adjustments is a positive step to ensure a level playing field when comparing the investment performances of the different superannuation sectors,” Maroney said.

“All else being equal, it has been widely acknowledged that the ATO’s calculation methodology used to calculate median investment returns for the SMSF sector underestimates the true performance of SMSFs relative to the APRA sector. The 2018 Productivity Commission report into the efficiency and competitiveness of superannuation confirmed this finding.”

The ATO indicated it had made the change in the glossary of the statistical review and in line with recommendations in the independent research by the University of Adelaide’s International Centre for Financial Services (ICFS), which proposed the ATO move from using the average value of assets over the period to the fund’s asset value at the beginning of the period when calculating performance. The new calculation is also now based on contributions gross of tax rather than net of contributions tax.

The SMSF Association, however, noted the ICFS research estimates the changes only account for between 25 per cent and 50 per cent of the investment performance gap.

Maroney said resolving the difference between the ATO and APRA calculation methods has been the first step to ensure SMSFs’ position in the broader superannuation industry.

“Given the way the data is collated and the different data inputs – the ATO uses information from SMSF annual returns while APRA uses information from fund financial statements – the ATO’s adjusted median return calculations are still likely to generate materially lower performance estimates relative to APRA-regulated funds – all else being equal,” he said.

“For this reason, while it may be appropriate to use the ATO’s ‘median’ investment return figures to compare the performance of the SMSF sector relative to other years, they should not be used to compare the performance of the SMSF sector with other superannuation sectors.”

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