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  • Large super funds income tax gap

    The large superannuation (super) funds income tax gap is the difference between the total amount of income tax collected from large super funds and the amount we estimate would have been collected if every one of these taxpayers was fully compliant with tax law.

    For the purposes of our tax gap estimates, large super funds are funds that are regulated by the Australian Prudential Regulation Authority (APRA) and have five or more members. They typically have thousands, or even millions, of members.

    Small APRA funds, which are not included in this analysis, have fewer than five members and have similar characteristics to self-managed super funds (SMSFs).

    Estimate of the tax gap

    Our estimate of the large super funds income tax gap covers the 2011–12 to 2016–17 financial years.

    For 2016–17, we estimate the net income tax gap for large super funds to be 1.6% or $182 million. In other words, we estimate that large super funds paid over 98% of the total theoretical tax payable in 2016–17.

    We used actual compliance results from the 2011–12 to 2013–14 financial years for our estimate. Due to the time taken to complete compliance activities, we projected results to estimate the gaps for 2014–15 to 2016–17.

    The tax payable by large super funds for the 2016–17 financial year was $11 billion. Tax payable is calculated by deducting both refundable and non-refundable tax offsets from gross tax. Franking credits are the main offsets for large super funds.

    Large super funds generally seek to comply with their tax obligations. Where we do observe non-compliance, this generally arises from differences in interpretation of the law, for example, in:

    • overclaiming of the foreign income tax offset
    • incorrect use of the capital gains tax (CGT) discount and the capital losses offset provision in respect of gains from non-taxable Australian property of a foreign trust
    • overclaiming of franking credits.

    Income tax for super funds

    Super funds are concessionally taxed savings vehicles that help individuals save for their retirement. The large super fund sector is highly regulated and scrutinised.

    Increased regulation and complexity in operating and administering super funds has led to a significant decline in employer-sponsored corporate funds and consolidation in the retail and industry super fund sectors.

    Income tax for super funds is applied at a flat rate of 15% on taxable income, or half that of the large company tax rate of 30%. There are also various exemptions and deductions that apply to super funds. This means that the taxable income of most funds is much lower than their gross or assessable income. For example, income derived from assets used to support the current pensions paid to members is known as exempt current pension income (ECPI) and is exempt from tax.

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      Last modified: 17 Oct 2019QC 56335