Taxation of super funds
The assessable income of complying superannuation funds will generally include amounts of ordinary and statutory income such as interest, dividends (including franking credits), rent, trust distributions and realised capital gains.
In addition, the tax rules also specifically include and exclude certain contributions from a complying superannuation fund's assessable income, as shown in the below table.
Table: Assessable and non-assessable contributions
|Assessable contributions||Non-assessable contributions|
|Employer contributions including superannuation guarantee and salary sacrifice||Personal contributions where the member has not provided a valid deduction notice to the trustee (includes amounts remitted to the fund from the member's after-ax salary by an employer)|
|Personal contributions where the member has submitted a valid notice of intent to claim a tax deduction under section 290-170 of ITAA 1997||Eligible spouse contributions|
|Contributions made by a third party other than by a member's spouse or on behalf of a child||Government co-contributions|
|Amounts transferred from a foreign superannuation fund that the member has elected to be assessable to the fund (commonly the amount of earnings since the member became an Australian tax resident)||Contributions on behalf of a child that are not made by the child's employer|
|Payments of superannuation guarantee shortfall amounts from the ATO||Taxable component - taxed element and tax-free component of a rollover|
|Amounts contributed that qualified under the small business retirement or 5-year exemption (including amounts contributed on behalf of the member by a third party)|
Assessable capital gains
Where a complying superannuation fund has realised capital gains and capital losses (including unused losses from previous years), it can use the losses to reduce its capital gains in the same way as an individual taxpayer.
After applying any losses, any remaining capital gains on CGT assets made by a complying superannuation fund are included in the fund's assessable income. However, a 331⁄3 % discount applies where the fund has held the CGT asset for longer than 12 months, so where a CGT asset held for longer than 12 months is sold, only 2⁄3 of the capital gain is assessable.
For assets acquired prior to 21 September 1999, a complying superannuation fund may instead choose to use the indexed cost base method for calculating the capital gain, in which case the CGT discount mentioned above will not apply.
Where a complying superannuation fund holds an asset that was acquired prior to 1 July 1988, it will be deemed for CGT purposes to have acquired the asset on 30 June 1988. This means that complying superannuation funds do not have any 'pre-CGT assets' that are ignored for CGT purposes. For capital gains purposes, the cost base of a 30 June 1988 asset is the greater of its market value at 30 June 1988 and its cost base at 30 June 1988.
Exemption of certain insurance proceeds from assessable income
Under ITAA 1997, any capital gain or loss made by the trustee of a complying superannuation fund on a lump sum life insurance policy or a policy of insurance against an individual suffering an illness or injury is disregarded and therefore not included in assessable income. This allows a complying superannuation fund to receive life insurance, terminal illness insurance and TPD insurance proceeds tax free.
Income protection insurance held on a member's behalf through super is not assessable income of a complying superannuation fund, and the fund trustee cannot claim a tax deduction for proceeds paid to a member.
Last modified: Wednesday, July 24, 2019