Changes in ATO data collection methods from year to year affect comparisons of SMSF data across years.
In 2013, the SMSF annual return was changed to improve data collection on SMSF asset holdings and expenses. The main label changes affecting analysis were as follows:
- Sub-labels were added to report on the types of assets held under limited recourse borrowing arrangements (LRBA). Also, the return form instructions were updated to clarify how LRBA investments should be reported, which has led to increases of LRBA assets reported by SMSFs since 2013.
- New labels were added to report on ‘non-deductible expenses’ incurred by SMSFs, particularly those in retirement phase. The relevant non-deductible expense items have been incorporated into the calculation of 'total operating expenses' in the net flow of funds analysis.
Data limitations and differences in methodologies affect comparison of SMSFs with non-SMSF sectors.
Rounding of figures may cause minor discrepancies to totals. For example, some proportions are rounded to zero but are not equal to zero.
In 2010, the ATO introduced a new integrated core processing system for the collection and handling of data, which has affected the reproduction of certain historical SMSF data. Continual improvements will be made to the methodologies for reporting SMSF information, which may result in changes to figures in the future.
Differences in methodologies
Differences in methodologies may include the following.
- Valuation and accounting practices might lead to incorrect calculations of return on assets (ROA). In particular, APRA-regulated funds must report assets at market value, while SMSFs are required to value all assets at their market value for the 2012–13 and future years.
- Treatment of tax might differ between APRA-regulated funds and many SMSFs. APRA funds generally make full provision for income tax on an accrual's basis, as do many SMSFs. However, SMSFs are not required to do this and many do not – in which case, the fund is effectively taxed on a cash basis.
- Exemption from income tax on investment earnings for funds in retirement phase means these funds have higher after-tax returns than an identically invested accumulation fund. Given that SMSFs have a proportionately higher number of member accounts in retirement phase, there is potential for the ROA of the whole SMSF population to be overstated.
- Costs may be under or overstated because cost amounts for SMSFs are based on amounts included in the SMSF annual return rather than actual expenditure on fund costs. Such costs could include
- life insurance and related covers, if only a portion of the premium is deductible depending on the type of insurance cover
- opportunity costs, because the cost of a trustee’s time and effort in operating the SMSF are not captured. These costs are more likely to be reflected in APRA funds
- costs incurred in retirement phase SMSFs, where only a part of an SMSF's total expenditure is tax deductible because the fund is not entitled to a deduction for expenses incurred in deriving exempt income
- invisible costs, which potentially arise when assets are held through an external investment structure, such as a trust or managed investment scheme, rather than directly. Under these circumstances, fees charged by the investment structure will be expensed within the structure and only the net return remitted to the SMSF via distributions. This will not undermine the ROA calculation, because whether the expenses are incurred directly or in another vehicle, the net return to the SMSF is identical. However, the fees charged by the investment structure will not be taken into account in operating expense calculations because the calculations only capture expenses actually occurring within the SMSF. This can occur in both SMSFs and APRA funds
- advice costs, because how (and whether) advice is received and paid for also affects comparisons
- establishment costs, which are incurred by SMSF members but, due to their capital nature, are not deductible or able to be amortised over a defined life.
- Management expense ratios of public offer funds. There are a number of membership features in a public offer super fund that make its published management expense ratios not directly comparable with the operating expense ratio of an SMSF (such as contribution fees, buy/sell spreads, insurance premiums and exit fees).
- Number rounding has been used to comply with privacy legislation and regulations and some cells in some tables have been aggregated. However, this does not affect the total number of records or the total amounts.