Taxation on SMSFs
There are number of different ways in which tax is made applicable to Super funds and SMSFs.
The section below elaborates on various imposts covering Income Tax on earnings,contributions tax, GST, Excess Contributions Tax (ECT), and the tax-free pension phase.
Tax on Income (0%, 10% or 15%)
Comprehending tax on income and SMSFs
SMSFs are subject to income tax but they obtain concessional treatment if they comply with the governing rules of Super. Taxable income of a complying SMSF is taxed at 15%, In comparison, the non-complying funds are taxed at 45%. Most funds are compliant and are run keeping the Super legislations in mind.
Commonest case of assessable income for complying SMSFs are:
- assessable contributions
- interest, dividends and rent
- net capital gains.
However, there are specific types of SMSF income that are taxed at much higher rates:
- 47% is the tax slab for non-arm’s length income
- 49% is the tax slab for no-TFN contributions
- 49% is the tax slab for concessional contributions above the concessional cap.
A complying SMSF is at liberty to claim deductions for expenses. Such expenses may include the supervisory levy and auditor fees (those which are incurred in gaining or producing assessable income.
So, let us glance at the rates once ….
15% tax
As mentioned above, the 15% tax rate applies only to the most assessable income of an SMSF.
10% tax
You will often hear people talking about the capital gains tax (CGT) being 10% in a Super. This is not real tax but only its colloquial interpretation. In the event of realising a capital gain, an SMSF must calculate it as net capital gain and make the amount part of the assessable income. This income is taxable at 15%.
In the event where the fund has owned the asset in excess of a year, a general discount is applicable; one that brings down the gain by 1/3d of the original value. In effect, this implies that capital gain is taxed at 10% for such asset.
0% tax
Again this is not a real tax rate.
This defines a tax free scenario which exists for the various incomes earned from investments that are utilised to support pensions paid to the members of the fund. The moment pension starts, the income made from assets in the pension phase becomes exempt from taxes. In effect, they are zero tax income.
Contributions Tax
Assessable contributions
There are a few specific contributions obtained by a complying SMSF which are included in the fund’s assessable income and thus taxed at 15%. These ‘assessable contributions include:
- Contributions made by employer (including salary sacrifice arrangement)
- personal contributions which are already notified by members as being tax deductible
- contribution made by any person or entity other than the member, exceptions being spouse contributions and co-contributions from the government
Contribution Limits (Caps) & Excess Contributions Tax
In the way they are classified, contributions can be concessional (before-tax) or non-concessional (after-tax). The table below imparts information on contribution limits, excess contributions tax and payments.
CONCESSIONAL (BEFORE-TAX) | NON-CONCESSIONAL (AFTER-TAX) | |
CONTRIBUTION LIMITS/CAPS | Under 50: $30,000 for 2014/15.Over 60:$35,000 for 2014/15. | Under 65 as on 1 July: $180,000 (A multiple of the concessional contributions cap make the non-concessional contributions cap. It changes in the future just as the concessional contributions cap is indexed.) p.a. or $540,000 for a 3 year period.Age: at or over 65 on 1st July: $180,000 a year |
EXCESS CONTRIBUTION: tax applicable | Amount contributed over and above the cap will be subject to an additional 31.5% tax (so the total tax levied is equal to 46.5%, including Medicare Levy). For financial years 2011/12 and 2012/13, if you had made excess contributions of up to $10,000, you can opt refunding them from your super account. This amount is then assessed at the marginal rate of taxation. 2013/14 onwards, you can opt refunding 85% of excess concessional contributions from your Super account (once again, taxable at the marginal tax rate). | Amount contributed over the cap is taxed at 46.5%- top slab of marginal tax rate (this includes Medicare Levy). |
PAYMENTS |
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Note: The part of your personal contributions later claimed by you as a tax deduction will be taxed at 15% – and justly reclassified as concessional contributions (applicable only to to self-employed members) |
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