Your superannuation savings are invested in a single asset or a portfolio of assets. Depending on the asset, it will produce income or capital growth or a combination of both.
These earnings will be taxed, just like your personally owned investments. The difference is the rate at which they are taxed.
Income and Capital Gains received from your personal investments can be taxed as high as 47.0%. In superannuation the maximum tax rate is 15%.
All income is taxed on an annual basis (income tax) and capital growth is taxed when an asset is sold and a capital gain has been realised (capital gains tax).
Income and Capital Growth are collectively referred to as ‘earnings’
Superannuation earnings tax rates are dependent on the ‘phase’ that the account is in and the type of earnings – income or capital growth.
There are two phases – ‘Accumulation Phase’ and ‘Pension Phase’.
Click here for an overview of changes that may apply from 1 July 2017.
Tax on Superannuation Earnings – Accumulation Phase
Tax on superannuation earnings in Accumulation phase are as follows
Capital Gains 15%
Note: Capital Gains realised from an asset that has been owned for longer than 12 months receives a 1/3rd discount. This is similar to the 50% general discount offered to individuals who sell and realise a capital gain on an asset that they owned for longer than 12 months.
Tax on Superannuation Earnings – Pension Phase
Tax on superannuation earnings in Pension phase are as follows:
Capital Gains 0%
That’s right; all earnings received from assets in Pension phase are received tax free. This is regardless of the age of the member.
Determining the phase
In a non-SMSF account, such as a retail or industry account, it is easy to determine the phase. Your account will either be a pension account or an accumulation account. You may have one of each. You may even have a number of each. The earnings in the accumulation accounts are taxed at accumulation phase rates and the earnings in the pension accounts are taxed at pension phase rates.
SMSF – Segregated Assets
In a SMSF, the assets may be segregated for each member and each account. This is where specific assets relate to specific members and further segregated for each account the member holds in the SMSF. In this instance the tax is applied in the same manner in which it is applied in a non-SMSF account.
SMSF –Non Segregated
In a SMSF where assets are not segregated, the tax is applied on a proportional basis. For example, let’s say that the only asset of the SMSF was a business property that earned rent of $40,000 p.a. Let’s say that the SMSF had two members. One member in accumulation phase and one member in pension phase, each with equal balances.
This same process would be applied to any realised capital gains.
The Downside? Any amount invested in superannuation is unable to be accessed until you meet a Superannuation Condition of Release.
If you would like anything clarified or have any further questions about Tax on Superannuation Earnings or any other topics, please do not hesitate to leave a comment in the section below .