That’s about 64 per cent larger than the biggest SMSF at the end of fiscal 2018, which held $330 million, and experts argue the uber-wealthy funds have expanded their fortune even further over the past two years.
The extraordinary figures, revealed in Australian Taxation Office documents obtained under Freedom of Information laws, have prompted top experts to call on Treasurer Josh Frydenberg to close down the overly generous superannuation tax concessions accessed by the ultra-wealthy as the nation embarks on budget repair from the COVID-19 crisis.
The data from the ATO’s top 100 SMSF monitoring program show there were 27 individual SMSFs that had savings greater than $100 million in the 2019 financial year – the most recent year for which there are available figures.
That is an increase from the 22 $100 million-plus SMSFs a year earlier.
Total assets held across the top 100 SMSFs increased from $8.71 billion in 2018 to $9.64 billion in 2019.
These funds, likely held by the wealthiest Australian families, receive generous tax concessions, including taxed earnings at a low rate of just 15 per cent in accumulation and for all savings in excess of $1.7 million cap on pensions for individuals and $3.4 million for couples.
In fiscal 2019, the top ranked SMSF held savings worth $544,353,888, the second largest fund managed $346,355,020 and the third largest held $266,518,256.
In all, eight SMSFs held more than $200 million in savings in 2019, compared to five SMSFs a year earlier.
The smallest fund in the top 100 program had savings of $51,690,456 at the end of 2019, compared to $47,946,648 a year earlier. The names of the SMSF owners are protected under the Taxation Administration Act 1953.
Treasury’s recently released Retirement Income Review, chaired by former IMF director and senior Treasury bureaucrat Michael Callaghan, found the wealthiest superannuation savers with balances exceeding $5 million have tucked away a collective $90 billion in their accounts and are receiving more government support – in terms of tax concessions – than the support received by all low-income households combined.
Evening the scales
Australia’s top actuary Michael Rice said given the performance of investment markets, the top 100 SMSFs would be “much bigger” now.
Mr Rice said the government’s latest Intergenerational Report, which showed that while concessions on superannuation contributions would hold steady at 1 per cent of GDP over the next 40 years, tax concessions on the earnings of super assets would double from 1 to 2 per cent of GDP by 2060. Together, concessions will account for 3 per cent of GDP.
Mr Rice said the government could even the scales by taxing super in both the accumulation and pension phase at 10.5 per cent – which would deliver the government the same revenue from a different mix of taxpayers by “lowering taxes on younger people and raising them on the richer retirees”.
Alternatively, the government could tax the entire superannuation system at 15 per cent, which would increase revenue by more than 40 per cent.
“The extra revenue would come in handy as we try and pay off the national debt,” Mr Rice said. “We have suggested both options in the past, but the government has not been interested.”
Another option would be to limit the amount of money allowed in the tax-concessional system at the current tax-free limit of $1.7 million per person.
“Anything above that should be taken out – the people keep their wealth, but it is shifted out of a tax-privileged environment,” Mr Rice said.
In 2016, then-treasurer Scott Morrison introduced the cap for tax-free super accounts, sparking a rebellion among the Liberal Party’s well-heeled base.
While excessive funds can be left in accumulation accounts, taxed at a concessional rate of 15 per cent, holding investments in the super system is still far more advantageous for tax minimisation.
If the investments were held outside of super, they would attract tax applied at a marginal rate. For a wealthy Australian, this would likely be a rate of 45 per cent, plus the Medicare levy.
There are thought to be about 6000 SMSFs with more than $5 million in assets, compared with about 500 accounts above that threshold in large APRA-regulated funds.
The cost of concessions
Super concessions now cost the federal budget $36 billion in forgone tax annually – about three times the amount usually spent on the JobSeeker, formerly Newstart, payment. The Intergenerational Report found super concessions will surpass the cost of the aged pension by 2040.
The Grattan Institute estimates half of these tax concessions flow to the wealthiest 20 per cent of households.
Grattan Institute director Brendan Coates said: “It’s impossible to argue a super balance of $50 million is consistent with the purpose of having substantial tax concessions in super.”
“This shows how the system is being used as a tax planning vehicle and probably a taxpayer-funded inheritance scheme. The government should be looking at capping the amount you can have in the system or look at the introduction of higher rates of tax applied to bigger balances,” he said.
The ATO last year started investigating about 30 super-large SMSFs over concerns they were misusing tax concessions or aggressively investing in commercial property development, with funds in some instances reaping annual investment returns above 1000 per cent.
The Retirement Income Review said the provision of tax concessions for very large superannuation balances “are not required for retirement income purposes as they are unlikely to encourage additional saving” and that it appeared that “large balances are held in the superannuation system mainly as a tax minimisation strategy, separate to any retirement income goals”.
A spokeswoman for the ATO said the agency monitors the top 100 SMSFs to ensure the funds “acquired their assets within the regulatory frameworks and are appropriately accessing super tax concessions”.
The ATO said: “When higher risk arrangements such as reported contraventions or non-arm’s length arrangements are identified, compliance action is initiated by the ATO.”