Self-managed super funds are gearing into property more heavily amid regulator concerns that debt is fuelling growth in house prices and creating risk for the financial system.
The Australian Tax Office's 2013-14 annual report said limited recourse borrowing arrangements – which allow self-managed super funds to gear into property – have risen threefold from $2.5 billion at the end of June 2012 to $8.7 billion at the end of June 2014.
"With limited recourse borrowing arrangements increasing in value . . . we will continue to ensure these arrangements are appropriate and meet all legislative requirements," the Tax Office said in its report.
The Australian Securities and Investments Commission recently stepped up reviews of the commissions that are paid to agents and advisers, recommending property as a self-managed super funds investment.
The financial systems inquiry, led by David Murray, has also suggested a ban on this kind of risky debt.
The self-managed super fund industry continues to grow. There are more than 534,000 funds and total membership exceeds 1 million. This represents an increase of 21.3 per cent in the number of small funds over the past four years, the report said.
Self-managed super funds assets now exceed $557 billion, representing 30.1 per cent of total superannuation assets under management across the retirement system.
The Tax Office has also been keeping watch over the sector.
"To maintain the integrity of SMSFs as a key element in the retirement system, we used a risk-management approach to undertake over 37,000 compliance activities, many resulting in enforceable undertakings to rectify identified breaches," the report said.
"Where serious breaches occurred, our compliance actions included making 129 funds non-complying – removing their tax concessions – and disqualifying 585 trustees."
The report said in 2013-14 it prevented 258 funds from entering the system and removed 186 existing funds in which it suspected illegal access was planned.
"This approach has proven very effective at reducing the incidence of illegal early release and we remain vigilant for new schemes and methods," the report said.
The Tax Office also gave fresh figures of the number of penalties dished out for individuals exceeding their superannuation contribution caps.
In 2013-14, the agency issued about 66,000 assessments, raising over $256.4 million in liabilities where people exceeded the contributions caps. It said this represented just 0.6 per cent of people who made contributions to their superannuation fund.
The federal government's proposed changes to stop penalising individuals breaching caps on super contributions has angered industry super funds. In a submission to Treasury Industry Super Australia said it would benefit the rich and could lead to more people "gaming" the system.
