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Taxation of super funds

Untaxed government superannuation funds

Section: 6.5

A limited number of government superannuation funds are exempt from taxation.

These are commonly referred to as untaxed superannuation funds, and include:

  • all constitutionally protected superannuation funds
  • unfunded public sector superannuation schemes.

Constitutionally protected superannuation funds

Constitutionally protected superannuation funds include some State government superannuation funds. They may be funded or unfunded.

A constitutionally protected fund is exempt from income tax applying to its contributions and earnings for constitutional reasons.

Unfunded public sector superannuation schemes

Unfunded public sector superannuation schemes include some State and Federal Government superannuation funds.

Fully unfunded public sector superannuation schemes do not receive contributions or have assets to earn income or capital gains, and as such are not liable for income tax.

Partially funded public sector super schemes do not pay tax in respect of unfunded liabilities, but normally pay tax on assessable contributions and earnings in respect of funded liabilities. However, public sector schemes can also choose to elect to not pay tax on funded employer contributions (additional tax is instead paid at the time benefits are paid to the member). Other funded income amounts, such as income, capital gains or personal concessional contributions, are assessable in the same way as for a taxed non-government scheme.

Other modifications for untaxed superannuation fund

To compensate for the fact that otherwise assessable contributions and earnings of an untaxed superannuation fund are exempt from tax, the taxable component of benefits paid from these funds consists of an untaxed element which may be subject to higher tax rates.

There are also modifications to contributions cap rules and Division 293 tax rules for members of some untaxed superannuation funds.

Last modified: Wednesday, July 24, 2019