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Questions & Answers – Tax Impact on your SMSF


+ What tax is payable by Members who have commenced a Pension?

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.

+ Do I pay tax on Unrealised Capital Gains if I don't sell the asset?

No. 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. You will however notice when you receive your annual compliance documentation from ESUPERFUND that unrealised capital gains on assets are recorded as income in the SMSF Income Statement. This is a legal reporting requirement as all assets of the SMSF must be revalued to market value at financial year end in order to accurately report each Members Super Benefit in the SMSF. Notwithstanding that the unrealised capital gains appear in your SMSF Income Statement they are excluded from the SMSF Tax Return and not subject to tax until the asset is sold and the capital gain realised.

+ Where can I find an example of the Tax Savings to commence a Pension?

To see the potential Tax Savings associated with commencing a Pension, please view our Case Study here.

+ Can one Member commence a Pension and another Member remain in Accumulation Mode?

Yes. Each Member's Benefit in an SMSF is tracked separately. This means that one Member can commence an SABP or a TRIS, whilst the other Member remains in Accumulation Mode.

+ If one Member in my SMSF has commenced an SABP and the other Member has not what tax rate does my SMSF pay?

If there are two or more Members in the SMSF and one or more Members have not commenced an SABP, then those Member's share of the SMSF still attract tax at up to 15%. Of course those Members can also commence an SABP when eligible, reducing the tax rate on their share of the SMSF income and realised capital gains to 0% also. When ESUPERFUND attends to the annual compliance work for the SMSF, the assets will be prorated between the assets that are in "SABP Account" and the assets that are in "Accumulation Account" and/or “TRIS Account”.

For detailed explanation and an example, please click here.

+ Do I still need to lodge annual compliance documentation for my SMSF once I commence a Retirement Phase Pension given no tax is payable on my Super Benefit?

Yes. Even though you do not pay tax on the income and realised capital gains on your Super Benefit, your SMSF is still required to prepare Financial Statements and an Income Tax Return each year. Similarly your SMSF must be audited each year.

+ Can I continue to contribute to Super after I commence a Pension?

Yes. You can continue contributing to your SMSF even after you commence a Pension. For contributions you are still subject to the contribution rules. For more information on the contribution rules, please click here. That is if you are aged under 65 you can contribute to your SMSF even after commencing a Pension with no work test required. If you are aged between 65 and 75 you can contribute to your SMSF even after commencing a Pension if you have worked for at least 40 hours in a period of not more than 30 consecutive days in the particular financial year. You should bear in mind that Concessional Contributions (which include Employer and Salary Sacrificed Contributions) continue to be subject to tax at 15% even after you commence a Pension.

+ Do I pay tax on my Concessional Contributions after commencing a Pension?

Yes. The 15% contributions tax on Concessional Contributions into an SMSF continues to apply regardless of your pension status.

+ What happens to additional contributions made to my SMSF after I commence a Pension?

Before you commence a Pension (SABP or TRIS) your SMSF Benefit is recorded in your "Accumulation Account". When you commence an SABP or a TRIS your SMSF Benefit is transferred and recorded in your "SABP Account" or “TRIS Account”. These are simply "Accounting Entries" in your SMSF and do not require separate Bank Accounts for each Account Type.

Unlike Retail Funds, an SMSF can accept contributions (subject to the normal contributions rules) and rollovers after the SABP/TRIS has commenced. These contributions and rollovers continue to be made to the Transaction Bank Account setup for your SMSF. When you make additional contributions and rollovers to your SMSF after you commence a Pension (SABP or TRIS), they are allocated to your "Accumulation Account".

This will mean that you will have two "Accounting Accounts" at the same time in this case, namely an "SABP Account" or “TRIS Account” paying your Pension and an "Accumulation Account" which represents the additional contributions and rollovers made to your SMSF after commencing the Pension. The difference between each Account is the "SABP Account" does not pay tax on earnings and realised capital gains but the "Accumulation Account" and “TRIS Account” do pay tax on earnings and realised capital gains at up to 15%.