Superannuation Taxation

Superannuation Taxation
Superannuation Taxation - Australia - Point B Planning

Superannuation taxation - how is super taxed

Key takeaways:  What is the taxation treatment within the superannuation funds?

Before we discuss taxation of superfunds, we need to outline the different types of funds available.

Taxable superannuation funds can be divided into 2 – Accumulated / defined benefit

Accumulated fund: A superannuation fund where your retirement benefit are based on employer and additional contributions you make.

  • These are the most common accumulation accounts and represent some of the larger funds such as Australian Super, BT Super, CBUS and Hesta.
  • Within this environment, the superfund balances are directly linked to real assets such as stocks and bonds. Due to this, they have the tendency to fluctuate in line with market returns.

Defined benefit: A superfund where your retirement benefits are calculated by a predetermined formula.

  • Usually calculated using average salary, number of years worked.
  • These funds are uncommon and reducing in number. Some funds such as government public funds and Uni Super still offer these accounts however it is generally limited to those who work in the sector.
  • Unlike the accumulation accounts, there is no direct link to investments or market returns.
  • Which in turn, results in no fluctuation and more dependent on the employee maintaining their employment.

Below we list the different types of income and capital gains taxation:

  1. Assessable income (eg: Employer contribution, interest income, assessable capital gains that are less than 12 months, unfranked dividends)
    • All add up together and is taxed at the concessional complying superannuation fund tax rate at 15%. Generally anything going into the fund, will receive a 15% tax within the super account.
  2. Assessable contributions (eg: Contributions from employer)
    • A form of assessable income to a superannuation fund and, less tax deductions claimed by the superannuation fund. -This is taxed within the superannuation fund at 15%.
  3. Investment income (15% for complying funds, 45% for non-complying funds) .
    • Complying funds: Funds which comply with the Superannuation Industry (Supervision) Act 1993. Qualify for concessional tax rates.
  4. Capital gains
    • From 21 September 1999, only two-thirds of the realised capital gain is assessable for assets that have been held by the super fund for at least 12 months. -Taxed at the fund rate: 15%, which provides an effective tax rate of 10% on capital gains.
  5. Insurance Where insurance is held within superannuation, the superannuation trustee is the owner of the insurance policy; therefore, the proceeds are paid by the life company to the trustee. The proceeds of life insurance policies are generally received tax-free by the trustee and added to the member’s superannuation account.

Payments of life insurance proceeds to payments are tax-free (exception: where the benefits are paid to superfund then to beneficiaries, but beneficiaries are not financially dependent. If this occurs, tax at 30%)

As taxation within superannuation can be quite complex, we recommend you speak to one of our advisers who service the Yarraville, Seddon, Williamstown and Altona areas.

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