Complying Super Funds
The normal income tax rate of a complying self-managed superannuation fund in accumulation phase is 15% of its taxable income which will also specifically include:
- assessable contributions – essentially those which for which a tax deduction is claimable
- investment earnings – dividends, interest and rent
- capital gains within 12 months
Capital gains after 12 months are taxed at 10%.
The government maintains a public register of complying super funds here.
New: Higher rates for higher balances
The Treasurer has announced that from 1 July 2025, the tax rate applied to future earnings of funds in the accumulation phase with balances above $3 million will be increased to 30% (replacing the existing 15% rate).
The 30% tax rate will not be retrospective and is intended to apply only to relevant earnings from the 2025-26 year onwards from fund assets above $3 million in value. As the proposal currently stands, the value includes unrealised gains.
Certain types of income are basically taxed at penalty rates, at a rate which matches the top marginal rate on the personal income tax scale.
Higher rates are applicable (from 1 July 2017) to:
- non-arms length income and earnings of a non-complying fund – 45%
- contributions without quotation of a tax file number – 47%
- contributions above the allowable caps – subject to corrective withdrawals when allowed – 47%
Exempt income – funds in the pension phase
Income that a complying SMSF earns from assets which support an eligible income stream (pension) entitlement is EXEMPT from income tax EXCEPT earnings from assets supporting a Transition to Retirement Income Stream from 1 July 2017.
Fund expenses associated with exempt income are not deductible, and where applicable should be apportioned between the pension and accumulation funds. Some expenses however, such as the supervisory levy and death and disability premiums may still be claimed in full. See more here.
Capital gains discount
Complying SMSFs are entitled to a capital gains discount of one-third in respect of assets which had been owned for at least 12 months. The capital gain is reduced by 1/3rd when calculating taxable income.
When the normal tax rate of 15% for a complying fund is taken into account, a 1/3rd discount effectively reduces the nominal tax rate on capital gains to 10%.
Allowable capital losses – both current year and past years – are deducted from current year capital gains before applying the discount.
Warning: Schemes to take advantage of the low super fund tax rate
The Tax Office is on the lookout for schemes or arrangements which channel income through a super fund in order to get the benefit of a low 15% or zero income tax rate.
The consequences of getting caught out are not just in having to pay back the tax saved – in worst cases the cumulative effect of penalties and interest can almost wipe out a fund’s assets, and associated individuals banned from having an SMSF. For more reading on this topic see: Warning: This mistake could destroy your SMSF
SMSFs and GST
SMSFs are subject to the general rules which require registration if GST turnover exceeds the turnover limit which is currently $75,000.
Otherwise GST registration (and therefore access to GST credits) is optional, and whether it is worth doing so should be weighed up against the expected value of GST credits claimable as against the additional reporting and administration involved.
The value of GST credits will be limited due to the input-taxed nature of most investment income, giving rise to a nil or reduced credit.
There is more information about this here: GST credits and financial supplies
- Super Contributions tax
- SMSF tax deductions
- Setting up a (complying) SMSF
- Trust distributions – non-arms-length income
This page last modified 2023-05-04