Large, or ‘uber’, SMSFs are now almost impossible to build, according to Michael Hallinan, a superannuation lawyer. And capping the pension-phase earnings is a solution to a problem which no longer exists.
According to Hallinan, special counsel for Townsends Business & Corporate Lawyers, the problem with capping the amount of super which can enjoy tax-free earnings in pension phase is that it is a solution to a legacy problem which is not likely to happen in the future.
Before July 2007, there were limits on the amount of benefits which could be taken on a concessionally taxed basis (the old Reasonable Benefits Limits regime) but no limit on the amount of undeducted contributions which could be made.
“Currently, we have the reverse: limits on the amount of undeducted contributions which could be made and no limits on the amount of benefits which can be taken on a concessionally taxed basis,” Hallinan says.
“Uber SMSFs’,” which Hallinan defines as those with more than $10 million in assets, “became ‘uber’ as a result of the pre-July 2007 system. It is very difficult to contribute sufficient monies under the current system to create an ‘uber’ SMSF,” he says.
“If an individual could contribute the maximum contribution each year for 40 years: the total contributed amount would be about $8.2 million ($180,000 plus 85 per cent of $30,000). Obviously, there would be earnings to add to the calculation, but a real return of 2.55 per cent (3 per cent gross less 15 per cent tax) may produce $14.5 million in present-day dollars. Realistically, how many people at age 25 could contribute to super $205,500 each year for 40 years?”
The latest ATO statistics suggest that there are about 22,000 SMSFs which have assets greater than $10 million.
… as 22,000 ‘uber’ SMSFs get set for slow decline