SMSF tax information
Superannuation is a tax advantaged retirement savings arrangement where employers, employees and those who are self-employed make contributions for fund members. The reason superannuation is considered to be a tax advantaged arrangement is because tax concessions are available at the time some contributions are made to the fund, the income on the fund’s investments is taxed concessionally and lump sums or pensions can be taxed at low rates or tax free.
Concessional contributions include:
- Contributions made by your employer — either employer compulsory super guarantee (SG) contributions, or contributions made under a salary sacrifice arrangement
- Personal contributions claimed as a tax deduction.
For most people, concessional contributions are taxed at 15%. There is a maximum of $25,000 that can be contributed each year. Any contributions above this amount are included in the member’s assessable income and taxed at their marginal tax rate.
Non-concessional contributions are personal contributions (made from after tax dollars) where the member does not claim a tax deduction. No tax is applied to non-concessional contributions up to the cap amount.
Earnings within an SMSF
For a fund that is in the accumulation phase, income earned on investments within an SMSF is taxed at 15%. Franked dividends paid by an Australian company may entitle the SMSF to a tax credit, reducing their overall income tax rate. Capital gains on assets held for 12 months or more are taxed at 10%. Capital gains on assets held for less than 12 months are taxed at 15%.
For funds that are in the pension phase, income earned on investments is not taxed, up to the member's transfer balance cap.
Superannuation lump sum payments
A superannuation lump sum paid to a member aged 60 years or over is tax free. But for those under 60 years old, some tax may be payable. It depends on the amount and the member’s age.
A superannuation lump sum benefit can comprise of both taxable and non-taxable components, depending on the composition of the member's benefit.
Pensions paid to a member 60 years or over are tax free. For persons under 60 years old, the taxable pension is taxed at their personal marginal tax rates and a tax offset may be available.
Don’t take your money from the fund early
If you take your money from your SMSF earlier than the superannuation rules permit the amount withdrawn can be taxed at penalty rates, the fund loses its tax concessions and the trustees penalised for allowing the money to be released early. It is illegal to access superannuation early.