The latest survey from SMSF software maker Class Super revealed that the introduction of the $1.6 million transfer balance cap and changes to transition to retirement income streams (TRIS) have seen nearly 25 per cent of previously tax-free assets lose that status.
The two changes saw assets undergo a massive shift into accumulation and mixed phases, with asset value in accumulation phase jumping 90 per cent from March 2017 to $422 billion in June 2018.
“The forced shift of assets out of pension phase has dramatic tax implications for SMSFs,” Class chief executive Kevin Bungard said.
“Assuming a modest return on assets for the 2018 financial year, we estimate this shift will result in an increase in the gross tax due on SMSF earnings of nearly 90 per cent from 2017 – a massive impact.”
Class said the 2016 super changes have netted a “tectonic shift in assets”, with pension assets squeezed hard. It noted that as of March 2017, 31 per cent of assets were held in the pension phase with 45 per cent in mixed phase.
By June 2018, only 14 per cent of assets remained in tax-free pension phase, with mixed phase assets jumping to 57 per cent.
A side effect of this shift has been an increase in contribution splitting and recontributions, triggering a notable improvement in the gender balance in SMSF balances.
However, SMSFs can’t take much more change, Class argued, condemning Labor’s plans to abolish the cash refunds on excess dividend imputation credits.
“Given the impact of the 2016 super reforms, we don't consider the proposed Labor policy to further increase the tax burden on self-funded retirees by reducing imputation credits for SMSFs is appropriate, especially if it disproportionately impacts SMSFs compared to APRA funds,” Class said.
“If the proposed changes go through, SMSFs will not only be subject to 15 per cent income tax on a higher portion of their assets (now in accumulation), but they may also lose their tax credits on their pension and accumulation assets.”
Class said the SMSF sector has spent the last two years grappling with the “significant challenges” posed by regulatory change.
“While maintaining compliance and maximising retirement wealth has never been more complex, we hope the end of super reform impact is now in sight,” Class said.