ATO report highlights changes in SMSF sector with more women investors

The ATO notes the ‘SMSF sector continues to grow’ with more than 1.1 million members now responsible for more than $876bn in assets. Picture: Bloomberg

A newly released report from the ATO on the Self Managed Super Funds sector shows smart independent investors are clearly optimising the tax structure as women become wealthier inside the funds.

The latest annual numbers on the sector says the average balance for female SMSF members lifted by 23 per cent from 2018 to mid-2021, to $736,000.

Meanwhile, males in SMSFs did not do quite so well, with average member balance increasing by 19 per cent, although on average they have a higher balance at $867,000.

The growing participation of women in SMSFs is a key theme in recent ATO stats. In a quarterly report last year, more women between the ages of 35 and 44 established SMSFs than men.

“It’s clear from the ongoing ATO numbers that women are increasingly using SMSFs to guarantee they have control of their retirement needs,” says Shelley Banton, head of education at ASF Audits.

More broadly, the ATO notes the “SMSF sector continues to grow” with more than 1.1 million members now responsible for more than $876bn in assets.

Indeed, SMSF start-ups (known as commencements) are running at almost double the pace of SMSF wind-ups.

Though this statistical breakdown of SMSF activity has just been released, it is worth keeping in mind they reflect conditions a year and a half ago when the average SMSF (generally with two people) had assets of $1.5m, up 18 per cent over the previous five years.

Over the ATO’s selected period of review there are significant changes in asset allocation and legal structures. There is also a very useful guide to audit activity for SMSFs after a string of controversies in that area over recent times.

In line with recent patterns, Australian shares and cash dominate, with 74 per cent of assets in locally listed shares – the figure may be misleading as holdings such as Wall Street-focused Exchange Traded Funds would still be counted as ASX investments.

Similarly, cash holdings – at 27.5 per cent – are always higher among SMSFs, reflecting the need of independent retirees to have cash available for mandatory drawdowns.

The figures also show Australian SMSF operators are deleveraging as they get older. As the report suggests: “SMSFs in the retirement phase had very similar asset allocations to SMSFs in the accumulation phase.” The only noticeable differences were that SMSFs in the retirement phase tended to favour listed shares, while accumulation phase funds held a greater proportion in LRBAs. (LRBAs referred to Limited Recourse Borrowing Arrangements where SMSFs borrow to fund investments such as property holdings).

The report also gives a fresh insight into the audit issues at SMSFs. There has been a string of controversies over SMSF audits, with an exodus of personnel from the sector. In a dramatic move last year, lawyers Mackay Chapman launched a fully funded class action against the auditors linked with Melissa Caddick.

The ATO data shows there were 3444 audits performed on SMSFs in the 2021–22 period, with around 43 per cent of auditors performing between 5-50 audits, while 9.3 per cent of SMSF auditors conducted more than 250 audits, representing 70.5 per cent of total number of audits.

In other words less than 10 per cent of auditors do the vast majority of SMSF auditor work.

The number of auditor contravention reports (ACRs) reported by approved SMSF auditors in 2021–22 was 2.8 per cent of the total number of lodging SMSFs. In 2022–23, ACRs were lodged for 15,200 SMSFs, reporting 41,500 contraventions. Just under half (46 per cent) of all contraventions were reported as rectified.

Or to put that another way, the odds of your SMSF having a contravention are slightly less than three in a hundred – and if you are audited almost half the contraventions end up being rectified without further trouble.

The report also shows the growing popularity of the corporate trustee legal framework for SMSFs: 84 per cent of per cent of all new SMSFs now have a corporate trustee structure.