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Your SMSF and Taxes: What You Don’t Know Could Cost You

The compulsory superannuation system has been in operation for over two decades now, and it has been a great wealth builder for a generation of Australians. And in recent times, the element of control that was lacking when we handed over our retirement savings to someone to manage has been addressed.

The attractiveness of having a Self Managed Super Fund (SMSF) is that people can now make their own investment decisions directly. But the flip side is that administering and complying with the many rules of the system can be costly and time consuming if you don’t understand the law.

Taxation law in particular can be a pitfall for an otherwise successful SMSF, so which taxes could apply to you?

SMSF Classification

Broadly speaking, SMSFs fall into one of two categories. The first is complying super funds, as deemed by the Australian Taxation Office (ATO). Basically, complying funds are those that have met their reporting obligations by letting the ATO know that they exist and they are are ready to be regulated.

In return, the ATO imposes a flat taxation rate of 15% on these funds. On the other hand, non-complying funds are those that have failed to undertake the necessary notification and compliance steps. The penalty for failing to do this is having the highest marginal taxation rate of 45% applied to the fund.

Taxation of Income

SMSFs are a tax effective investment vehicle, but they are not tax free. Money and assets contributed into the fund is taxed at the rate of 15% if it has not already been taxed.

If you have already paid tax on income, then if you choose to put that amount into your SMSF, it is tax free, but only up to a certain limit. This is to avoid double taxation of the same money.

Capital Gains

As with shares or property held by individuals, SMSFs pay capital gains tax when they sell an asset and make a profit. On the other side of the coin, any capital losses made can be held in the fund and used to offset future capital gains.


Registering for goods and services tax (GST) is compulsory at the $75,000 threshold if the GST applicable turnover of the fund exceeds that amount. Funds can always choose to register for amounts less than that, but you should get advice about whether doing so will be a benefit, given the reporting costs that attach to it.

SMSFs provide Australians with the ability to make their own investment decisions for their retirement, but the reporting and taxation consequences can outweigh the benefits if they are not complied with, and it can pay valuable dividends to get the right professional advice at the right time.

If you are in Sydney’s west, particularly in the Bankstown, Moorebank, Prestons, Edmondson Park, Liverpool and Ingleburn areas, and wish to discuss the benefits of setting up a SMSF, the ATP Tax Consultants welcome your call on 1300 829 484, or email us anytime.

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