Research examines whether SMSF are just tax avoidance vehicles

Wednesday, 2 October 2013  Features

New research from UNSW's Australian School of Business has investigated the management of Self Managed Super Funds (SMSF), and has looked into whether they are just tax avoidance vehicles.

Gordon Mackenzie, a Senior Lecturer Taxation and Business Law​ at the Australian School of Business said the research showed a surprising result - that SMSF practitioners are very conservative in the way that they manage the tax of the SMSF that they advise. "They may be organised in a different way to more regular types of funds," he said "but it has nothing to do with tax avoidance; it is simply a function of the legal structure of the super fund."

He said "we fully expected that these practitioners would be interested in the cutting edge type of tax transaction for SMSFs. In fact they were not. First, their clients will not pay them to have a fight with the tax office. Secondly, their clients wanted to sleep at night and not worry about a knock on the door from the ATO. So, in fact clients who run SMSF are conservative in the main."

Gordon Mackenzie has also looked at whether SMSFs have tax advantages over large superannuation funds. "The tax rules are identical for each type of super fund - with that one exception, which benefits large funds. However you do get different tax efficiencies depending on whether the assets in the fund are pooled, as for large funds, or, to use technical speak, 'hypothecated', which means that they are directly related to the member's account, for SMSFs. This may be better for the individual, but generally, with identical tax rules the result is the same."

He has looked at whether SMSFs investing in property have an advantage. "It is well known that SMSF can invest in residential property. That is not a tax issue; it is an investment class issue. Of course, large funds can, and historically have, invested in that asset class, but SMSFs investing in that have nothing to do with tax. More likely it is a function of the type of person who sets up a SMSF better understanding that class of investment. Again, the ability of a SMSF to leverage is a regulatory issue, not tax. Sure, it can have a tax affect, but the main point of leverage is that the way that it is structured does not increase the risk of the fund."

For further comment call Gordon Mackenzie on 02 9538 9521

Media contact: Julian Lorkin: 02 9385 9887