Tax Office to look more closely at SMSF property investment

Gains made on property investments held by self-managed super funds are likely to come under greater scrutiny following plans for a new ATO benchmarking report.

The tax office has set up a working group to look at ways to gather and publish annual details of the average investment return and operational costs based on the size of the SMSF, assistant tax commissioner Stuart Forsyth has revealed.

A by-product of this project would be a crackdown on those SMSFs avoiding paying tax on the any gains they have made on their investments – including any gains on property they hold within their fund.

Property is a growing component of SMSF portfolios, with DIY funds investing $500 million more in real estate in the March quarter than they did in the previous quarter, according to official ATO figures.

According to Multiport, which administers around 1,400 DIY funds, 16% of their portfolios are made up of property assets.

The increasing scrutiny of DIY super funds comes as the sectors continue to grow, with $3 billion added over the March quarter taking the total investments held by 7,500 funds to $418 billion.

Details of the working group were revealed by Forsyth in an interview with the Australian Financial Review.

Forsyth says the working group might look at segmenting funds based on their account balance with $50,000 to more than $10 million.

It follows warnings by Forsyth that SMSFs faced heavy tax penalties for failing to lodge annual tax returns on time.

The Association of Superannuation Funds of Australia has expressed concerns at the broad approach of the proposal.

“What is very important is the ability to compare like with like and it must include all fees, such as audit fees and advice fees, and it must be net returns,” says ASFA chief executive Pauline Vamos

In 2010, the Cooper review of the superannuation called for improvements to the level of quality information due to the size of the sector which includes 460,000 funds and is now worth around $1.4 trillion.

For more about SMSFs investing in property, see our e-book 16 questions self-managed super fund trustees should ask before investing in property.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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