How Your SMSF Is Taxed

By Maria Rogerson

June 3, 2016Finance Superannuation funds

One of the benefits of running a self-managed super fund is the ability to have a great control over the tax position of the fund. However, in order to abide by all the rules and minimize the risk of breach you need to arm yourself with all the important information about your taxation obligations. First of all, you must be familiar with ATO – the official government regulator for SMSF which supervises the compliance of the fund with superannuation and taxation law.

SMSF tax rates

SMSF is taxed on the foreign credit and foreign divided, but can claim the foreign credit against any tax payable. This means that the fund will pay 15% SMSF tax rates which include: dividends, interest, managed fund distributions, concessional contributions, capital gains and deductible member contributions. For example, if the fund receives a $350 foreign dividend, it will pay a tax of $75, being 15% of the total $500 (made up of $350 cash plus $150 foreign credit).

The special income comes with SMSF tax rates of 46.5%. This type of income may include dividends that are received from a private company. But because the main purpose of the fund is to benefit members to save for their retirement, not save tax. Because of this, the related party income as well as the personal dividends are limited. Taxation of the investment income is 0% giving support to the pensions.

When it comes to taxation before retirement, members of the SMSF usually are working which means the fund will receive the contributions right from their employer. Until the member does not retire he cannot use any money from the fund. Once they are retired, the SMSF is paying eligible pensions to the trustees but the pension accounts cannot be increased by any other contributions.

The taxation of the fund will be different if it has members of different classes. In this situation, the fund needs to order an actual certificate. This document is a calculation of the member’s balances and tells the trustees how much of the fund is tax-free and how much is taxable. An SMSF is granted tax-free only if a valid pension has been paid, otherwise, the assets are not supporting a pension and the trustees must pay at least the minimal pension to members.

The information above is just a piece of what you need to know related to how an SMSF is taxed. As an SMSF trustee, make sure that the fund will not make any mistakes involving income tax return or that it underpays tax. Regardless of how well you are informed about running an SMSF and its tax rates, it is always a good idea to talk to an expert so you can get your tax right.