It’s always good to have a quick review of the taxation statistics the ATO releases from time to time as it helps to put everything into perspective. A good case in point is the 2013/14 statistics released in mid-March 2016.
Super funds and non-arm’s-length income
In the past couple of years, thousands of words have been written about super funds and non-arm’s-length income (NALI). According to the latest statistics, 17 SMSFs had NALI from companies, 31 from trusts and 20 from other sources. In total, 68 SMSFs had $4.2 million of NALI. Just under 380,000 SMSFs declared $28.3 billion of income. In other words, 0.004 per cent of funds had NALI, representing 0.015 per cent of total income earned by these funds. I’m not saying NALI isn’t an important issue, but based on these numbers, I think it’s irrelevant for most SMSF investors.
Death benefit increase
This represents the tax deduction available when a fund pays a death benefit and increases that benefit to provide a refund for the contributions tax that has been paid. This is often called an anti-detriment deduction. For the 2014 financial year, 33 SMSFs claimed $2.5 million. By way of comparison, 147 Australian Prudential Regulation Authority (APRA)-regulated funds claimed just under $800 million for this item. This is an important concession and it should not be removed. It is often a topic of seminars and articles. But it is hardly ever used by SMSFs.
Transfer of tax liability to a life insurance company or pooled super trust
This option allows super funds to transfer their obligation to collect and pay contributions tax to other superannuation-paying entities, such as life offices or pooled super trusts (PST). In the 2014 financial year, 12 SMSFs and 26 APRA-regulated funds transferred a total of $13 billion to life offices or PSTs. However, SMSFs only transferred $95,000. When contributions tax was first introduced in 1988, it was quite popular. For example, in 1999/00, 190 SMSFs transferred $3.7 million. However, the importance of this deduction has clearly declined for SMSFs to the point where the government might consider removing it.
The statistics showed SMSFs paid $132 million in audit fees. In addition, SMSFs incurred $1.6 billion in management, administration and investment expenses. By way of comparison, APRA-regulated funds paid $5.1 billion in expenses for all the above. That is, APRA funds have costs that are three times the total cost of running SMSFs. To put this into perspective, APRA-regulated funds manage about two times the assets managed by SMSFs, but have roughly 28 times the number of members compared to the SMSF space.
Exempt pension income
Of the $28.3 billion in SMSF income, 42 per cent of it, or $11.9 billion, was calculated to be from current pension liabilities. APRA-regulated funds had $12 billion of current pension liabilities. If all of that exempt income was taxed at 15 per cent, then that would be about $3.6 billion of additional tax revenue. In a small way this helps explain why the ATO wants to make sure funds calculate exempt pension income correctly.
APRA-regulated super funds received $71.1 billion of employer contributions. In contrast, SMSFs collected $5.4 billion of these contributions. SMSFs made $2.3 billion of personal deductible contributions, while APRA-regulated funds made $2.9 billion worth.
It is often assumed SMSFs have a bias to Australian listed shares compared to APRA funds. This is not necessarily borne out by the statistics. In 2013/14, SMSFs earned $4.5 billion in franked dividends, which had franking credits of $1.9 billion. APRA-regulated funds had franked dividends from direct shareholdings and trust distributions of $8.6 billion and franking credits of $5.3 billion. That means APRA funds earned about 1.9 times the franking credits of SMSFs while managing about twice the assets.
Death and disability insurance
Only 87,000 SMSFs claimed death and disability insurance premiums, which, given there are over 500,000 SMSFs, seems a remarkably small number, even allowing for the fact a good proportion of SMSFs only have retired members. But this needs to be put into perspective. In 2000/01, only 17,000 had life insurance and in 2011/12, 72,000 SMSFs had purchased insurance. The most recent increase can perhaps be put down to the requirement for fund trustees to consider if their fund members needed some form of insurance.