Claims SMSFs have been able to benefit from capital gains tax (CGT) and limited recourse borrowing arrangement (LRBA) ‘loopholes’ to benefit members overlook the legality of those strategies, as well as the risk taken to employ them, an SMSF investment platform head has said.
Sharesight chief executive Douglas Morris said comments around the changes to CGT, which will not apply to super, and government plans to ban residential property LRBAs have generated debate about supposed advantages for SMSFs.
“Taxing risk assets and encouraging long-term investing should be treated more favourably than anything else and that holds true for assets inside or outside of super, but it’s especially true for super because we want to encourage long-term behaviour inside that environment,” Morris told selfmanagedsuper.
“I don’t think the tax environment inside SMSFs and super is an unfair advantage.
“Things like CGT in super or LRBAs have been called loopholes and we heard that comment in recent days, but they are not loopholes, they are actual tax settings designed to drive good outcomes for individuals.”
He noted ongoing tax changes, particularly in regards to superannuation, were turning the attention of more fund members to these settings and how they could benefit from existing rules.
“Ironically, the changes this government is pushing through have forced investors to think about tax, who weren’t thinking about tax,” he added.
“If you activate this topic, people are going to do their homework and start figuring out what’s at stake pretty quickly.
“Previously we were not seeing people saying: ‘I’m going to open an SMSF or use super to cram as much money into it as possible,’ but it will now increase the amount of people who open SMSFs to ensure they are maximising their contributions in a concessional and a non-concessional way.”
He observed the combination of increased CGT outside of super and the removal of residential LRBAs within SMSFs will result in a reallocation of capital, but not a pullback from those committed to investing via an SMSF.
“I don’t think the government understands that when talking about asset flows and asset allocation, it’s all connected. If I’m going to invest here and you make it less attractive, I’m going to invest there, or vice versa,” he said.
“So, if you make residential borrowing for investing property inside of SMSFs against the rules, you will see less asset flows into that asset class.
“We will see people shifting towards direct equities and exchange-traded funds, if not private assets as well.
“People are going to use SMSFs for long-term risk, make sure their fund has access to international markets and private assets and be the most aggressive and flexible vehicle, and for assets outside of super look at dividend returns.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason