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  • Small super funds income tax gap

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

    Small super funds, and in particular self-managed super funds (SMSFs), are an increasingly significant and integral component of Australia's superannuation system.

    For the purpose of this analysis, we define small super funds as those with no more than four members. The small super fund population consists of approximately:

    • 515,000 SMSFs
    • 2,100 small APRA-regulated funds.

    Estimate of the tax gap

    For 2016–17, we estimate a net income tax gap of 2% or $28 million. In other words, we estimate that small super funds paid around 98% of the total theoretical tax payable in 2016–17.

    The tax payable from small super funds for the 2016–17 financial year was approximately $1.4 billion.

    Our estimate of the small super funds income tax gap covers only the 2015–16 and 2016–17 financial years, as well as a revision of the 2014–15 estimate. The small super funds income tax gap for the 2016–17 financial year has been estimated using a bottom-up model-based approach.

    The gap is mainly attributed to the following:

    • superannuation being a concessionally taxed environment
    • super funds in accumulation phase are generally taxed at 15% while those in retirement phase generally have a zero tax rate
    • approximately 43% of all small super funds are wholly or partially in retirement phase, significantly reducing the opportunity for a tax gap to be present.

    While super funds are subject to concessional treatment for income tax purposes, it is still important that they pay the correct amount of tax within the concessional framework.

    Overall, compliance within small super funds is very good. Most amendments to tax returns are minor with low or no tax consequence.

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      Last modified: 17 Oct 2019QC 56336