Concessions help wealthiest Australians avoid tax with super

The richest 3 per cent of self-managed super funds (SMSFs) have been using controversial tax concession loopholes to amass retirement fortunes, latest figures show.

Data released by the Australian Taxation Office (ATO) shows that SMSFs with more than $5 million in assets now account for more than 3.6 per cent of all SMSFs. Riding on the back of record super returns and big jumps in house prices in the 2020-21 financial year, just under 20,000 individual self-managed retirement accounts have balances of more than $5 million, up from about 14,800 five years ago – or about a one-third jump.

Read: Carry-forward super contributions

The figures show there are almost 600,000 SMSFs in Australia, managing a total of $822 billion on behalf of 1.1 million members, the AFR reports.

Total assets held across the top 100 SMSFs increased from $8.71 billion in 2018 to $9.64 billion in 2019, it adds.

But it’s not just the strange economic times we’re living in that has boosted the coffers of these wealthy Australians. Generous tax concessions meant to help low-income households continue to allow the rich to squirrel away fortunes.

“The overall number of SMSFs reporting total assets in excess of $5 million is slightly less than 20,000 based on the number of outstanding lodgements at the time the data was extracted,” an ATO spokesperson told the AFR.

“According to the ATO, around 70 per cent of SMSFs have two members, typically a married couple, followed by 23 per cent with just a single member. Those with three or four members each made up just 4 per cent of funds,” says SuperGuide.

Read: Continuing to make super contributions

Contributions to a superannuation accumulation account is taxed at a concessional rate of 15 per cent, a much lower rate than would be charged if the money were held outside super where it could attract a rate of up to 45 per cent, depending on how the money was held (trusts, shares, etc).

Federal government changes to super contribution concessions after Treasury’s Retirement Income Review revealed laws that were initially intended to encourage working and middle class people to make voluntary contributions to their retirement savings are mostly being used as a tax-minimisation strategy by the wealthiest Australians.

“It appears that large balances are held in the superannuation system mainly as a tax minimisation strategy, separate to any retirement income goals,” the review states.

“The impact of earnings tax concessions means higher-income earners receive more lifetime government support in dollar terms than lower and middle income earners.”

In fact, the way the concession system is designed rewards large sums of money being stored in retirement accounts and means the bulk of the money conceded is going back to the wealthiest families.

The AFR writes that SMSFs 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 the $1.7 million cap on pensions for individuals and $3.4 million for couples.

Read: What are the different contributions you can make to super

“As a person’s superannuation balance increases over time due to earnings growth, so will the value of their earnings tax concessions,” says the Retirement Income Review.

“The combination of a system where people on higher incomes achieve the largest superannuation balances, combined with tax concessions on superannuation contributions and earnings, means that higher-income earners receive more government support than other income groups over their lifetime.

“Further improvements in targeting superannuation tax concessions would improve the equity of the retirement income system.”

Matt Grudnoff, senior economist at The Australia Institute, is another fierce advocate for tax reform and says the system must and can work more efficiently to reduce inequality, instead of driving it.

“Australia taxes wealth lightly compared to other OECD nations,” he says. “With inequality in Australia only getting worse, we need a debate and better policies about taxing wealth properly and reducing inequality rather than exacerbating it.

“While many are concerned about the size of our taxes, consideration must also be given to the shape of our taxes because … not all tax measures are created equal.”

How do you feel about Australia’s super tax concessions? Do you benefit from them or do you think they are just another way for the rich to avoid tax? Let us know in the comments section below.

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Brad Lockyer
Brad Lockyer
Brad has deep knowledge of retirement income, including Age Pension and other government entitlements, as well as health, money and lifestyle issues facing older Australians. Keen interests in current affairs, politics, sport and entertainment. Digital media professional with more than 10 years experience in the industry.
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