From 01 July 2017, only the earnings from assets supporting a Retirement Phase Account (SABP or R-TRIS) are tax exempt.
It is important to understand that every Member has two accounts in an SMSF. These Accounts are an "Accumulation Account" and a "Pension Account (SABP or TRIS)". For more information on Pensions, please click here. These accounts are simply "Accounting Accounts" and not actual physical bank accounts. Accordingly whilst your actual Super Benefit will be invested in a range of assets including cash and shares, ESUPERFUND will allocate your Super Benefit between your "Accumulation Account" and a "Pension" in the accounting records of your SMSF.
ESUPERFUND tracks each Members "Accumulation Account" and a "Pension Account" as part of the annual compliance process. No action is required from you. ESUPERFUND will determine what portion of the SMSF belongs to each Member and in turn what portion of the Member Account belongs to each respective Members Accumulation and Pension Accounts on a proportional basis. This percentage is constantly changing during the financial year and is tracked by ESUPERFUND. Importantly as part of the annual compliance process ESUPERFUND will prepare a Member Statement for each Member of the SMSF. This is a legal requirement. The Member Statements are included in the annual compliance documents completed for clients and must be approved by you as the SMSF Trustee before lodgement with the ATO.
As part of the annual compliance process ESUPERFUND will determine the income and realised capital gains made during the financial by the SMSF. These are in turn allocated to each Members Pension and Accumulation Accounts on a proportional basis. Income includes dividends, interest and rent from property. Realised capital gains are gains from the sale of assets like shares and property. It is important to remember that unrealised capital gains (i.e. from assets that have appreciated in value but have not been sold) are never subject to tax until sold.
ESUPERFUND will in turn allocate the SMSF income and realised capital gains derived by the SMSF for a financial year to each Members Pension and Accumulation Account on a proportional basis. The tax rate that applies to the income and realised capital gains allocated to the Members"Accumulation Account" and “TRIS Account” will be taxed as detailed below
- Income will be subject to tax at 15%
- Realised Capital Gains will be subject to tax at 15% if the asset is held less than 12 months
- Realised Capital Gains will be subject to tax at 10% if the asset is held more than 12 months
Conversely the tax rate that applies to the income and realised capital gains allocated to the Members "Retirement Phase Pension Account" will be taxed is 0%. A 0% tax rate is a truly amazing taxation concession afforded to SMSFs providing thousands of dollars in annual taxation savings to Members who commence a Retirement Phase Pension in their SMSF.
For an example of how tax is calculated on the Pension and Accumulation Accounts, please click here.