John Maroney

The ATO will align SMSF performance calculations more closely with APRA-regulated funds after research found they were not being fairly compared.

The decision comes after the SMSF Association teamed with the University of Adelaide to conduct research which found the ATO’s calculations of SMSF yield produced lower estimated investment returns compared to APRA’s method for its regulated funds.

“The published performance results from the ATO for the SMSF sector understate actual performance,” Adelaide University lead researcher George Mihaylov said last week in a presentation of the findings.

In line with the findings of the research, the fund’s asset value at the beginning of the period is now being used and will be based on contributions gross of tax, according the ATO’s 2019-20 SMSF statistical overview report.

Previously, the average value of assets over the period was used and was net of contributions tax.

SMSF Association CEO, John Maroney, said the changes are “cautiously welcomed” by the association as the Adelaide University research estimated the changes during the period of review would’ve only accounted between 25-50 per cent of the performance gap.

“The research overcame these differences by using financial statement data from a large sample of SMSFs (the largest data sample ever used for this type of research) to calculate an annual return for each fund based on the same calculation methodology used by APRA to calculate returns for APRA-regulated funds,” Maroney said in a media release.

The association also cautioned against using the ATO’s SMSF statistical overview reports from using ‘average’ SMSF returns that are displayed next to SMSF ‘median’ returns to compare the sector’s performance against other sectors.

“For the reasons outlined in our research report, average returns that are pooled returns tend to be more representative of the investment performance of the larger funds in the data sample rather than the small funds,” Maroney said.

Acknowledgement a long time coming

The underestimation of performance was one of the findings in the 2018 Productivity Commission report on the efficiency and competitiveness of superannuation.

“All else being equal, it has been widely acknowledged that the ATO’s calculation methodology used to calculate median investment returns for the SMSF sector underestimates the true performance of SMSFs relative to the APRA sector,” Maroney said.

The PC report also noted SMSFs with more than $500,000 in assets performed as well as APRA-regulated funds. This led to the PC revising its recommendation between the final and interim report of a minimum of $500,000 in assets as the ideal threshold, down from $1 million.

This consideration related to the cost of running the fund and if the gross returns were justified the management costs.