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Taxation of super funds

Taxation of income in super vs other investment structures

Section: 6.2

Legal structure Tax rate on income
Super funds
  • 15% in accumulation phase within complying super fund.
  • 0% in retirement phase within complying super fund.
  • 45% in non-complying funds.
Companies
  • 27.5% if company is a small business entity
  • 30% for other company
Individuals/partnerships Individual or each partner's marginal rate of tax.
Discretionary trusts Where the trustee distributes all income to each entitled beneficiary, tax is payable on the beneficiary's total assessable income,
including the trust distributions, at each beneficiary's marginal tax rate.

Retirement phase and accumulation phase

A superannuation interest is in the accumulation phase if it is not in the retirement phase. A complying superannuation fund is entitled to an exemption for so much of its ordinary income or statutory income as is attributable to its liability in respect of retirement phase income stream benefits of the fund. The exemption applies to income of the fund other than the fund's assessable contributions or non-arm's length income.

Broadly, a superannuation interest is in the retirement phase when a retirement phase superannuation income stream is payable from the interest. Retirement phase income streams include all superannuation income streams, except those listed below:

  • deferred income streams that have not yet become payable and where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. 
  • transition to retirement income streams where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release.
  • non-commutable allocated pensions or annuities where the recipient has not satisfied the retirement, reaching age 65, terminal medical condition or permanent incapacity condition of release. 
  • income streams where a commutation authority has been issued in relation to an excess transfer balance that a trustee has failed to comply with within the required 60 day period.

If an income stream is in the list of exclusions above, it is considered to be in the accumulation phase of superannuation for the purposes of the earnings tax exemption and the transfer balance cap. However, it is still considered an income stream for other purposes, including the proportioning of tax components and the taxation of payments from the income stream.

Last modified: Monday, October 9, 2017