Taxation Implications

When are your Benefits Taxed?

Accumulated superannuation monies and money held in pensions are treated very differently for tax purposes. This information is only general information about taxation and Supercorp recommends that Trustees and Members consult a suitably qualified professional who may assist with details of current tax rates and thresholds and how taxation may apply to benefits. Supercorp is able to assist Trustees and can provide detailed tax advice and recommendations on an individual case on a fee for service basis.

The amount of tax you will pay can depend on a combination of factors, including:

  • The Member’s individual circumstances;
  • Whether a benefit is a superannuation or pension benefit;
  • The current tax rates applicable (contributions tax, superannuation surcharge, marginal tax rates, Medicare levy and capital gains tax);
  • Whether the Member qualifies for any tax-free amounts, tax rebates or concessional tax treatment;
  • The Member’s adjusted taxable income (ATI) for superannuation surcharge purposes;
  • The tax free and taxable components of any Eligible Termination Payment (ETP);
  • The Member’s age;
  • The type of benefit being paid.

Contributions Tax

Tax is payable on:

  • Personal contributions (for which a tax deduction is allowed)
  • All contributions made by your employer.

Goods and Services Tax

If the trustees wish to recover some of the GST they paid for certain outsourced services through Reduced Input Tax Credits (RITC’s), the SMSF will need to elect to be registered for GST, and complete and lodge a quarterly or annual Business Activity Statement (BAS). Supercorp can assist Trustees in this task through the optional BAS Lodgement Service where Supercorp staff complete and lodge the BAS return on behalf of the Trustee.

Income and Capital Gains Tax - Superannuation

All income the SMSF derives during a year of income, including income reinvested, forms part of its assessable income and should be declared in the SMSF tax return for that year

Any taxable capital gain will also form part of the fund’s assessable income. The fund may be eligible for CGT concessions for assets held for more than 12 months prior to sale. There are different methods of calculating a capital gain including the indexation and discount methods. Supercorp will determine the most appropriate method of calculating any capital gain and applying any capital losses.

Income and Capital Gains Tax - Pension

The income and capital gains arising within a pension or income stream are not subject to tax.

Pension payments to members from account based, non-commutable or complying pensions will be subject to personal tax rates but may benefit from the taxable part being reduced by a tax-deductible portion.

Further, the tax on the remaining taxable portion may be reduced by a tax offset of up to 15% prior to age 60. All pension payments after the age of 60 are tax free.

Provision of Tax File Numbers

A TFN must be obtained for the establishment of a SMSF.

Supercorp will also collect member’s own TFNs under the SIS Act and will use them only for legal purposes. This includes finding or identifying member’s superannuation benefits where other information is insufficient, calculating tax on any ETP and providing information to the Commissioner of Taxation. These purposes may change in the future.

It is not an offence for members to choose not to quote their TFN. If members do not disclose their TFN, the Trustee (and Supercorp acting on behalf of the Trustee) is obliged to deduct the highest marginal rate of tax from any withdrawals and the maximum superannuation surcharge on contributions.

Supercorp may provide member’s TFNs to the trustee of another superannuation fund where that fund is to receive transferred member benefits, or to government bodies as part of regular SMSF reporting. Members may direct, in writing, that this does not occur if they wish. Otherwise Member’s TFNs will be treated as confidential.

Where member’s TFN has not been provided:

  • Trustees will be required to pay additional income tax on some contributions (generally employer contributions)
  • Trustees may not be able to accept member contributions.

What is the Residency Test?

For your self-managed superannuation fund (SMSF) to receive tax concessions, it must be a complying superannuation fund. To be complying a fund must satisfy a residency test, and from 1 July 2007 your fund must meet the definition of an ‘Australian superannuation fund’.

The residency test has three elements. As a trustee, you must make sure your fund meets all three conditions to ensure that it qualifies as an Australian superannuation fund at a particular time. These are:

  • Your fund was established in Australia, or at least one of the fund’s assets is located in Australia.
  • The central management and control of your fund is ordinarily in Australia, and
  • Either of the following
  • The fund has no active members, or
  • It has active members who are Australian residents, and who hold at least 50% of
  • The total market value of your fund’s assets attributable to superannuation interests, or
  • The sum of the amounts that would be payable to, or for, active members, if they voluntarily ceased to be members.

When is a fund established in Australia?

A self-managed superannuation fund is established in Australia when the initial contribution to establish the fund is paid to and accepted by the trustee or trustees in Australia.

What is the Central Management and Control of the fund?

The central management and control of your SMSF is the strategic decision making of the fund. This includes formulating the investment strategy of the fund and reviewing the performance of the fund’s investments. These duties are generally performed by the Trustees.

What does ordinarily in Australia mean?

The central management and control of your fund is ordinarily in Australia if the fund’s strategic decisions are regularly made in Australia. In some situations, a fund’s central management and control may be outside Australia for a period of time. In general, your fund will still meet the ‘ordinarily’ requirement if its central management and control is temporarily outside Australia for up to two years.

When is a member an Active member?

A member is considered to be an active member of a fund if they are a contributor to the fund, or if contributions to the fund have been made on their behalf. However, a member is not an active member if contributions have been made to the fund on their behalf and they are not a resident of Australia, they have ceased to be a contributor, and the contributions that were made on their behalf after they ceased to be an Australian resident were made in relation to the time they were an Australian resident.

What happens if your fund doesn't satisfy the residency rules?

SMSFs must satisfy the residency rules at all times to be eligible for the tax concessions that are available to complying superannuation funds. There are serious tax consequences if your fund becomes non-complying. If you are planning to go overseas for anything other than a short term holiday it is very important that you discuss your plans with your Financial Advisor or your Supercorp Account Manager.