Wed 31 Jan, 2018

Super Tax: A Complete Guide

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If you’re considering a self-managed superfund (SMSF), you’re probably keen to know a little more on the supposed tax benefits. In this article, we explain the main tax advantages to managing your own superfund, and compare these against the same scenarios if they were conducted outside a self-managed super fund.

Squirrel  does not provide this information from an advisory point of view. If you have questions about tax implications on your superfund, always consult an expert advisor – do not make investment decisions that are based on information in this article.

SMSF Income Tax

SMSFs enjoy concessional income tax rates of 15%, providing the fund’s income is below the cap – that is, the maximum amount of income that can be concessionally taxed. This is subject to change, so check with the ATO regularly for an up-to-date figure on how much your fund can earn at this concessional rate.

A fund’s ‘income’ is made up of investment returns, concessional contributions from members’ employers, and any fringe benefits and net investment losses. Any amount that tips your income over the threshold will be taxed at 30%.

Squirrel comparison: when comparing these tax rates with those that would be payable outside of a superfund, it’s clear that there may be substantial benefit to investing within an SMSF.

Investment income from properties, shares and other assets would be taxed at your marginal rate calculated based on your personal income. Depending on how much you earn, this can be up to 45%.


Income Tax Post-Pension

Once a member has commenced a pension within the SMSF, income tax on investments is reduced to 0%.


SMSF Non-Concessional Contribution Tax

Non-concessional contributions include those made by members as salary-sacrifice or other post-tax contributions that do not relate to a tax deduction. There is also a cap for these contributions, so check with the ATO at the time of contribution to be sure.

These contributions are generally not taxed providing they meet ATO criteria and comply with associated caps. Depending on your age, those under 65 may be permitted to make a non-concessional contribution of up to three times their current cap under a special ‘bring forward’ provision.


SMSF Capital Gains Tax

Capital gains tax in SMSFs is taxed concessionally at 10% when the asset has been held in the SMSF for more than 12 months.

Squirrel comparison: if you held an investment property outside of an SMSF, your capital gain upon the sale of the asset is assessed together with your other income, and then taxed at your marginal rate. So, if you earn $100,000 from your job and have a $100,000 capital gain, you will be taxed at the marginal rates for a total income of $200,000 – meaning a proportion of your income could be taxed at the highest marginal rate of 45%.


Capital Gains Tax Post-Pension

Much like income tax, capital gains tax is reduced to 0% once a member commences a pension within the SMSF!


SMSF Lump Sum Payment Tax

When members withdraw lump sum payments from their superfund after they’ve reached retirement age, it is generally tax free. Those under the retirement age may pay some tax on certain portions of the lump sum, depending on how much of it comes from non-concessional member contributions and other fund income.


SMSF Income Stream Tax

Once you have commenced a pension within an SMSF, the income you draw down each month is taxed at 0%. This excludes elements that remain untaxed from within the SMSF – generally all income withdrawn from the SMSF as a pension will be assessed based on the source of income within the SMSF and its previous tax treatment. An advisor will be able to assist in decision-making at this point in your fund’s lifecycle. Every fund and every member is different, and the taxes you’re subject to will be dependent on the assets and income within the fund itself.


Squirrel reminds all readers that tax rates, restrictions and caps are subject to change at any time. This content was written in 2017 and Squirrel accepts no responsibility for changes or updates to rules in the future. Always obtain professional, tailored advice on tax in your SMSF before making decisions.