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An Overview of SMSF Tax

Self-managed super fund (SMSF) taxation can be confusing and overwhelming for those unfamiliar with it. Understanding everything about SMSF taxation is essential before setting up an SMSF. This overview will provide a helpful guide to SMSF taxation and the benefits of setting up an SMSF.


What Is an SMSF?

An SMSF, or self-managed superannuation fund, is a type of fund its members manage. This means that the members of an SMSF are responsible for making all the decisions about how the fund is run, including investment decisions.

One of the key advantages of an SMSF is that it gives members a great deal of control over their retirement savings. However, this also means that SMSF members must be aware of the various tax implications of running their fund, thus requiring an experienced SMSF accountant. 


Benefits of an SMSF

If you’re in doubt about SMSF, take a look at the following benefits:


• Flexibility

An SMSF trustee can choose to invest in a wide range of assets, including shares, property, cash and term deposits, managed funds and other investment products.


• Tax Savings

How SMSFs are taxed can result in a lower overall tax bill. For example, an SMSF accountant can claim deductions for certain expenses, such as investment management fees and insurance premiums.


• Control

You can choose how your super is invested and when you access your benefits. This flexibility can be particularly beneficial if you have specific goals or needs regarding your retirement income.


How Is an SMSF Taxed?

As a member of the SMSF, you are responsible to comply with the tax laws. Here’s how an SMSF is taxed.


• Investment Income

The most common way an SMSF is taxed is by imposing a 15% tax on investment earnings. This includes interest, dividends, capital gains and other forms of investment income. 


• Contributions

Contributions made by members are generally taxed at a rate of 15%; however, some exemptions and concessions may apply, which you should consult with an SMSF accountant in Sydney.


• Benefits

Benefits of an SMSF (such as pensions and lump sum payments) are also taxable. 


How Is Tax Calculated on SMSF?


The tax on an SMSF is calculated similarly to the tax on any other type of investment. The income from the SMSF is taxed at the standard marginal tax rates, and any capital gains are taxed at the capital gains tax rate. 

Many special rules apply to SMSFs, however, which can potentially reduce the amount of tax payable. For example, SMSFs can claim several deductions and exemptions and may also be eligible for the capital gains tax discount.


Can You Claim Tax on SMSF?


Certain conditions must be met. For instance, you must have made after-tax contributions to your fund, and your fund must have earned income from investments outside of superannuation. 


 How Much Tax Does a Superfund Pay?

Superannuation funds are taxed at 15% of their taxable income. This includes investment earnings and other forms of income such as rent and interest.

The tax payable by a superannuation fund can be reduced by claiming deductions and rebates. For example, most funds can claim a deduction for contributions made by members.

The ATO also provides some concessions and exemptions that can reduce the tax a superannuation fund pays. The tax rate on distributions varies depending on the member’s age and the payment type. For example, lump sum payments to members aged 60 or over are tax-free.

Superannuation funds are also required to pay the Superannuation Guarantee (SG) levy. This is a compulsory contribution made by employers on behalf of their employees. The current SG rate is 10.5%.


What Are the Consequences of Not Complying with SMSF Tax Rules?


If you don’t comply with the tax rules that apply to SMSFs, you may have to pay the penalty.  

You may also have to pay income tax on any earnings from investments that are not taxed at the 15% rate. This includes interest, dividends and capital gains.

In addition, you may be liable for GST on any goods or services you purchase for your SMSF.

You may also be penalised if you don’t comply with the super laws. The penalties can be significant, and you may even end up in jail. If you’re not sure about something, seek the advice of an SMSF tax accountant in Sydney.


How Can I Ensure My SMSF is Compliant with Tax Rules?

There are several ways to ensure your SMSF is compliant with tax rules. Firstly, consult with your SMSF accountant to ensure you take advantage of all deductions and exemptions that may be available. Some resources available online and through the ATO can guide how to comply with tax rules. 

It is also essential to keep accurate records of all transactions and investments made by the SMSF, as this will help to ensure compliance during an audit.


Are There Any Other Tax Considerations for SMSFs?

Many specific tax considerations apply to SMSFs. Some of the key tax considerations for SMSFs include:


  1. Contribution Tax

The rate of contribution tax varies depending on the contribution type and the contributor’s age. For example, employer contributions are taxed at 15%, whilst personal contributions are taxed at 30%.


  1. Investment Earning Tax

This is a tax levied by the ATO on investment income, such as interest, dividends and capital gains. The investment earning tax rate depends on the investment type and the investor’s age. For example, earnings from shares are taxed at 15%, whilst gains from the property are taxed at 10%.


  1. Pensions and Withdrawals Tax

The pension and withdrawal tax rate depend on the payment type and the recipient’s age. For example, pension payments are taxed at 15%, whilst lump sum withdrawals are taxed at 20%.


  1. Death Benefit Tax

The death benefit tax rate depends on the payment type and the deceased member’s age. For example, lump sum death benefits are taxed at 15%, whilst pension payments are taxed at 30%.


  1. Capital Gains Tax

The capital gains tax rate depends on the asset type and the time it is held. For example, shares held for more than 12 months are taxed at 15%, whilst property held for less than 12 months is taxed at 10%.


How Malkoun & Associates Can Help You

Starting an SMSF can be challenging, but our team of experts will guide you through every step. We want to make the process as easy as possible so you can focus on what’s important. Malkoun & Associates can provide you with everything you need, from an SMSF accountant  in Sydney to legal expertise to get started with your fund.

Contact us today to find out more about our services.