SMSFs and Tax

Tax and SMSFs

Like any super fund, the income and investment returns of an SMSF are only taxed at the 15% concessional tax rate. And when the income is used to provide a pension stream, there is no tax at all. However, these concessions are available only to funds that comply with the ATO’s requirements for SMSFs. 

How are capital gains taxed in a super fund?

An SMSF capital gain is basically any profit an SMSF makes from selling an asset. It’s classed as income and taxed as such. Similarly, any loss made from selling an asset is called a capital loss. Both need to be included in the SMSF’s annual return to the ATO.

Because capital gains are treated as regular income, and an SMSF’s income is taxed at the concessional rate of 15%, then capital gains are also subject to a 15% tax.

But there are two additional, and very handy rules to remember, which apply to any super fund.

1. If an asset has been held for more than 12 months before it is sold, its capital gain may be eligible for a tax discount of 33%. That means, only two-thirds of the capital gain will be taxed, and at a 10% rate.
2. If the capital gain is used to fund an income stream (i.e. a member’s pension) then zero tax will be applied to the proportion of capital gain funding the pension payout.

Since the tax rules of SMSFs can be complex, and there are penalties for non-compliance, it is often wise to get a professional SMSF accountant to manage this part of an SMSF’s administration.

Can I do my own SMSF tax return?

Yes, you can prepare your own SMSF tax return, but to make sure you’re completing it accurately, you will need to know all the rules and regulations. It is generally recommended that complex SMSFs hire a specialist self-managed super fund accountant – not only for the expertise but also to save the trustee’s time since keeping abreast of reporting obligations and doing the paperwork can be very time-consuming.

Unlike personal tax, the ATO does not send out a tax assessment, so calculating the correct tax is up to the person preparing the return. What’s more, the return is not simply a tax return, but a more comprehensive report on all the SMSF’s transactions and benefit payments.

What does an SMSF accountant do?

An SMSF accountant can take on a range of tasks including:

• Assisting in setting up the SMSF’s accounts and structure
• Preparing periodical statements and accounts
• Drafting payment statements for members receiving a benefit
• Assembling documentation, for the annual audit and liaising with the auditor
• Completing the annual SMSF return including tax return and financial information

 If the accountant is also a licensed financial advisor, they may also provide investment advice to the trustees.

It must be remembered that the accountant cannot also be the SMSF’s auditor. 

References
SMSF tax return - ATO