In a potential blow to the self-managed superannuation fund (SMSF) sector, a proposal to alter the tax treatment of SMSFs has emerged, which could have significant cost implications for trustees and members. The proposed change, detailed in a recent article titled “This Change is About to Make Running an SMSF More Expensive,” has raised concerns among investors and industry experts.
Under the current system, SMSFs are eligible for a tax deduction for expenses incurred in obtaining tax advice. However, if the proposed change is implemented, this tax deduction will be removed. Proponents of the change argue that it is part of broader tax reform discussions aimed at simplifying the tax code and reducing perceived loopholes.
The removal of the tax deduction for tax advice expenses could potentially increase the financial burden on SMSF trustees. Many SMSF owners, especially those with smaller funds, rely on external professionals to navigate the complex tax and regulatory landscape. This reliance on external advice could become costlier without the tax deduction, affecting the overall returns of the fund.
According to the Australian Taxation Office (ATO), approximately 75% of SMSFs use external professionals for taxation advice. If the proposed change takes effect, SMSF owners would have to bear these costs directly, posing a challenge for funds with limited assets or those in the accumulation phase.
Critics of the proposal argue that removing the tax deduction may have unintended consequences. SMSFs play a vital role in enabling Australians to have greater control over their retirement savings. Adequate professional advice is essential to ensure compliance with intricate regulations and optimize investment strategies. The increased cost of obtaining professional advice may discourage individuals from establishing or maintaining SMSFs, limiting their choice and flexibility in managing their retirement savings.
To strike a balance between revenue considerations and the needs of SMSF trustees and members, alternative approaches could be explored. Rather than completely eliminating the tax deduction, policymakers could consider introducing stricter guidelines or thresholds for claiming the deduction. This approach would help address concerns about potential misuse of the deduction while still allowing genuine SMSF trustees to access the benefit.
As discussions around tax reform continue, the impact on the SMSF sector deserves careful consideration. While it is crucial to address any potential loopholes and ensure fairness, policymakers must also recognize the significant role SMSFs play in empowering Australians to take control of their financial futures. Striking a balance that preserves the integrity and attractiveness of SMSFs should be a priority.
The proposed change to remove the tax deduction for tax advice expenses in SMSFs highlights the challenges of achieving tax reform while safeguarding the interests of SMSF trustees and members. A careful evaluation of the potential consequences and exploration of alternative approaches that mitigate concerns would be a prudent course of action.
Reference:
Article: “This Change is About to Make Running an SMSF More Expensive” – The Australian Financial Review (Link: https://www.afr.com/policy/tax-and-super/this-change-is-about-to-make-running-an-smsf-more-expensive-20230419-p5d1kb)
