By Olivia Long

A common misconception in superannuation is that self-managed super funds (SMSFs) are treated more favourably than APRA-regulated funds. In part, it’s a notion that’s been deliberately (and mischievously) fostered by some in the industry; it’s also a product of a simple lack of knowledge.

The simple fact of the matter is that there is very little difference, whether it is contributions, benefit payments, tax or investment rules. And certainly there is no bias towards SMSFs.

Let me say from the outset that’s how it should be. Whether people are in an SMSF, or a corporate, industry, retail of public sector APRA-regulated fund, they should all be playing on a level playing field.

It is, however, worth exploring those few areas where there are differences, if only to lay to rest the myth that they constitute the rule, not the exception.

The most obvious difference is the regulatory bodies. As the term APRA-regulated denotes, those funds come under the umbrella of the Australian Prudential Regulation Authority (APRA). SMSFs report to the Australian Taxation Office (ATO), a body far better structured to handle a constituency that has more than 500,000 individual funds.

Some critics of SMSFs argue that all funds should be overseen by APRA, but it’s a not a responsibility that regulator seeks, realising the logistical nightmare of handling such a large number of funds.

Different regulators aside, where are the other differences. Well, on contributions there is none, whether they are mandated, government-sponsored or voluntary.

On benefit payments, both SMSFs and the APRA-regulated funds are on the same page when it comes to a tax free pension over the age of 60, a tax-free lump sum over 60, or Superannuation Industry (Supervision) Regulation pension payment standards.

Where there is a difference is in the area of anti-detriment payments on death. Here, the APRA funds have the edge because large funds can fund these payments from their member base. For SMSFs, however, it has to come from their investment returns or reserves. So chalk one up for the APRA-regulated funds.

On the tax front, it’s the same for the 15% tax rate and tax-free pension income. Where there is a difference – and, again, it benefits the APRA-regulated funds – it relates to capital gains tax. Those funds under the APRA umbrella can roll over their capital gains when they merge with other funds. There is no equivalent roll-over for SMSFs that merge.

It’s only when you get to the investment rules do the SMSFs get a break where it relates to business real property. In this instance they are allowed to acquire business real property from related parties such as other members of the fund.

It’s an important concession to our sector because it allows small business people to help fund their retirement via a business real property. For many trustees, it’s fair to say it’s typically the single-largest asset in their retirement portfolio.

However, in two other investment areas, a prohibition on borrowings and accounting standards, the fall of the dice favours the APRA-regulated funds. In the case of the former. the exemption that allows funds to borrow up to 10% of the fund’s value on a short-term basis clearly advantages larger funds that are able to gear up significantly simply due to their size.

With regards to the latter, the accrual accounting used by larger funds is a benefit as it allows them to inflate returns due to tax benefits in the short-term. SMSFs, however, are confined to using cost accounting standards. On all other rules governing investment, there are no differences.

Quite clearly SMSFs are not getting a free kick from the legislators or regulators. If anything, they operate at a slight disadvantage. But I for one am not complaining. I just wish this furphy of SMSFs getting the kid glove treatment could be laid to rest.