Taxation of super funds
Outline of the taxation of complying superannuation funds
Superannuation funds are essentially subject to the same taxation principles as any other taxpayer as provided by the Income Tax Assessment Act 1997, Income Tax Assessment Act 1936 and Tax Administration Act 1953, subject to certain modifications and concessions.
This means that unless specific provisions apply to the contrary, if an amount is assessable income under ordinary concepts, it will also be assessable income for a superannuation fund. If an amount is specifically excluded from assessable income by virtue of a provision that is applicable to taxpayers in general, it will also be excluded from assessable income for a superannuation fund.
In broad terms, Division 295 of the ITAA 1997 modifies the effect of the general taxation principles as they apply to superannuation funds. For example, Division 295 brings into assessable income certain contributions, exempts certain investment income and allows certain outgoings as deductions.
A super fund which complies with conditions specified in the SIS Act and SIS Regulations is subject to a concessional tax rate of 15% on its taxable income, which includes certain contributions received, investment income and realised capital gains.
However, a complying superannuation fund must pay tax at the rate of 45% on its "non-arm's length component" of its taxable income which comprises of non-arm's length income, private company dividends and certain trust distributions. Non-arm's length income is generally income derived from a scheme where the parties are not dealing with each other at arm's length and the amount of the income is greater than what it would have been had parties been dealing at arm's length in relation to the scheme.
In addition, complying superannuation funds can take full advantage of any franking credits in respect of Australian dividends even though they do not pay tax at the full rate
Last modified: Wednesday, May 1, 2019