Class SMSF members could face more than $825 million in additional tax liabilities; urgent need to address unmet advice needs
Sydney, 18 September 2024 – Leading cloud-based accounting and SMSF administration software provider Class has today released the 2024 Annual Benchmark Report, revealing more than 16,500 Class SMSF members face being adversely impacted by the Government’s proposed Division 296 tax. Furthermore, over 36% percent hold direct property and are more likely to find it difficult to meet additional tax obligations on these illiquid assets.[1]
The report also reveals while the number of SMSFs receiving advice has remained consistent over the past three years, more than 70% of SMSFs are not benefiting from access to professional financial advice, as the gap between the supply of financial advisers and the increasing demand for advice grows.[2]
The SMSF sector continues to demonstrate resilience and growth despite macroeconomic challenges including the increasing cost of living, with Class data revealing that average balances for new funds have reached an all-time high while Gen-X are still driving the majority of new fund establishments.[3]
In FY24, the average new fund establishment balance for Class SMSFs have reached an all-time high to more than $500,000, an increase of 9.2% since FY23.[4]
Meanwhile, Generation X (52.9%) and Millennials (27.7%) collectively drove 80.6% of new fund establishments, as total SMSFs grew to 625,609 funds and $990.4 billion in assets. SMSFs now comprise 25.3% of the $3.9 trillion superannuation industry.[5]
Class CEO Tim Steele said the Class Annual Benchmark Report analyses data from Class SMSFs to uncover key insights and trends shaping the future of the SMSF sector.
“As a leading provider of SMSF software solutions, we’re uniquely positioned to leverage data available through the Class platform and collaborate with industry leaders to deliver critical insights that empower financial service professionals and their clients to navigate the evolving landscape of SMSFs.”
Proposed Div 296 tax: $825.3 million tax liability for Class members
The report has revealed there are significant challenges for 16,531 high-balance members who collectively face $825.3 million in additional tax by the Government’s proposed Division 296 legislation.[6]
Mr Steele said: “Our research shows the proposed tax could significantly challenge Class SMSFs with high balances, with Class members facing on average just under $50,000 in additional tax liability. This could particularly impact the 36% of affected SMSFs that hold direct property, making it challenging to manage tax obligations given the illiquid nature of these assets.[7]
“For example, many small business owners and farmers could lose the incentive to transfer real business properties into SMSFs, making such strategies financially unviable. They may also find themselves with an even bigger tax bill with insufficient cash reserves to pay it.
“Furthermore, there are likely unintended consequences for younger generations if the $3 million-dollar super cap is not indexed and their super balances continue to grow, meaning there will be a lot more members impacted by the proposed tax in the future.”
Significant growth opportunity for advice
The report revealed 72.7% of SMSFs are not receiving financial advice, a figure which highlights the challenges many Australians face in accessing financial advice. The number of financial advisers declined by 5.7% in FY23, coinciding with a 4.7% increase in total SMSFs over the same period.[8]
Mr Steele said: “While the number of funds being established is on the rise, we also know the number of trustees accessing financial advice has stayed relatively stable over the past three years.[9]
“While advice accessibility is a challenge, improving productivity for financial professionals through ongoing investment in technology presents a significant opportunity. We’re also encouraged by the proposed legislative reforms which aim to improve access to financial advice.”[10]
SMSFs lead in strategic retirement transitions
A comparison of statistics between APRA and Class members shows SMSFs are significantly more likely to be using their superannuation balances to provide a tax-effective retirement income.
Mr Steele said: “93% of Class members 65 and over have moved their balances into pension phase and are therefore more likely to be taking advantage of tax savings and maximising their retirement benefits.[11]
“In contrast to APRA fund members, as of June 2023, only 48.8% of APRA members aged 65 years and over have transitioned to pension phase and are therefore more likely to be taking advantage of tax savings and maximising their retirement benefits.”[12]
In FY23, Class SMSF members aged 60-64 were 2.7 times more likely to use Transition to Retirement Income Streams (TRIS) or Retirement Phase Income Streams (RPIS) than members of APRA-regulated funds. They also have higher average balances, with a greater percentage in the pension phase after 65.[13]
“Financial advisers play an important role in helping clients make the transition to retirement and take full advantage of the proactive strategies available to them.”[14]
Members aged 65+ continue to drive growth in non-concessional contributions
Older Australians 65 years and over (50.6%) are driving growth in non-concessional contributions in response to several factors including taking advantage of the removal of the work test, downsizing contributions, rebalancing strategies, the indexation of contribution caps, and accessing financial advice.[15]
Mr Steele said: “Interestingly, non-concessional contributions for those aged between 40-65 years have decreased by 18%, possibly as a result of the current cost of living pressures.”
[1] Class Annual Benchmark Report: Div 296: taxing unrealized gains and its unintended consequences
[2] Australian Financial Advice Landscape 2024, Adviser Ratings, published on 27 June 2024.
[3] Class Annual Benchmark Report: Div 296: taxing unrealized gains and its unintended consequences
[4] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[5] 625,609 total funds (APRA Jun 30 Quarterly Statistics); 616,400 total funds (ATO March Quarterly Statistics)
[6] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[7] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[8] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[9] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[10] Investment Trends 2024 Adviser Business Model Report
[11] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation; 93.2% Class members over 65 in pension phase in FY23
[12] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation; 48.8% APRA members over 65 in pension phase in FY23
[13] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[14] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
[15] Class Annual Benchmark Report: Leading the way: SMSFs at the forefront of superannuation
For a full copy of the Class 2024 Annual Benchmark Report, please visit here.
– Ends –
For media inquiries contact:
Natalie Pennisi
npennisi@hub24.com.au
P: 03 9275 7835
About Class
Class is a pioneer in cloud-based wealth accounting and is recognised as one of Australia’s most innovative technology companies, delivering trust accounting, portfolio management, legal documentation and corporate compliance solutions to financial professionals across Australia.
For further information, please visit https://www.class.com.au
About HUB24
HUB24 Limited is listed on the Australian Securities Exchange, and includes the award-winning HUB24 platform, HUBconnect, Class and myprosperity.
The HUB24 platform offers advisers and their clients a comprehensive range of investment options, including market-leading managed portfolio solutions, and enhanced transaction and reporting functionality. As one of the fastest growing platforms in the market, the platform is recognised for providing choice and innovative product solutions that create value for advisers and their clients.
HUBconnect focuses on leveraging data and technology to provide solutions to common challenges for stockbrokers, licensees and advisers and enable the delivery of professional advice to more Australians.
For further information, please visit www.HUB24.com.au
Disclaimer
The information contained in this document is provided by Class Pty Limited ABN 70 116 802 058 and its subsidiaries (collectively, Class) and is current as at 12 September 2023. It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. This information is general in nature and may omit detail that could be significant to your particular circumstances. This information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. The information given in this document is in summary form and does not purport to be complete. While reasonable care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation and circumstances can change from time to time. Accordingly, neither Class nor any of its related bodies corporate make any representations or warranties as to the completeness or accuracy of the information in this document and none of these entities is liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions. Links to third-party websites are inserted for your convenience, but do not constitute endorsement of material on those sites or the relevant providers.