Superannuation tax loophole impacting housing affordability

Mike Taylor

Managing Editor and Publisher

6 March 2024

There is a loophole in superannuation taxation arrangements that is not only costing the Government money but is likely impacting housing affordability, according to the former Chief Investment Officer of Sunsuper, David Hartley.

In doing so, Hartley has pointed to data which showed that housing affordability based on the ratio of dwelling prices to income deteriorated sharply from 2000 describing it as attributable to the loophole in the current tax regime applying to superannuation funds.

Making clear he is speaking for himself and not any of the major financial institutions with whom he has been employed, Hartley claimed to the Senate Economics Legislation Committee that changes to superannuation legislation which occurred in 2007 permitting superannuation funds to borrow to finance investment in property and other assets have become problematic.

He said legislative changes were also made to make superannuation retirement benefits payments exempt from tax.

Hartley has produced evidence to a Parliamentary committee arguing that the current taxation settings have “directly contributed to a decrease in housing affordadability”.

Referring to the 2007 legislative changes, Hartley said that “as a result of these changes, it became possible for superannuation funds to negatively gear investments within the fund and then, once a member is in retirement, sell the negatively geared assets at a profit and pay no capital gains tax”.

“This currently means that tax deductions are allowed against income and contributions tax within a superannuation fund on investment arrangements that are not expected to generate taxable capital gains.”

“Naturally this makes investment into assets that tend to accumulate in value over time attractive for a superannuation fund. This is especially true for a self-managed superannuation fund that can be used as part of a comprehensive and personalised tax planning process,” he said.

“It is up to the Government to determine the extent to which this loophole impacts taxation revenue and whether it wishes to address it.”

“One way for the Government to close this loophole, if it wants to, would be apply a deemed realisation of capital gains at the point of retirement. This treatment would recognise that it is at this point that the tax status of the fund changes. There are other ways.”

“In addition to the potential detriment to Government revenue, it is also possible that the current taxation settings for superannuation funds have directly contributed to a decrease in housing  affordability,” Hartley said.