SMSF Technical Education & Strategies

 

Calculating your SMSF benefit tax components

**Note: if your over age 60, the info on this page is largely irrelevant as all benefits taken after this age are tax free.

When taking a benefit from your SMSF either as a lump sum or a pension (and your under the age of 60), there may be tax to pay on these amounts, depending on the makeup of your account. From 1 July 2007, your SMSF benefits are made up of a:

- tax free component, and a

 

- taxable component

 

Firstly, you calculate the amount of each of these components in your SMSF account. This provides you with a 'proportion' that each component makes up of your SMSF account. This 'proportion' is then applied to any lump sums or pensions that you take to calculate the tax-free and taxable components of the benefit.

 

Calculate the tax free component

The tax-free component your SMSF account is the total value of the following segments:

 

Contributions segment: includes all contributions made from 1 July 2007 that have not been included in the assessable income of the SMSF. Typically these would be your personal contributions not claimed as an income tax deduction.

 

Crystallised segment: includes the following existing components of your SMSF that are consolidated into the tax-free component:

 

- the concessional component

- the post-June 1994 invalidity component

- undeducted contributions

- the capital gains tax (CGT) exempt component, and

- the pre-July 83 component.

 

The crystallised segment is calculated by assuming that a full payout representing the full value of your SMSF account is made just before 1 July 2007.

 

Calculate the taxable component

The taxable component of your SMSF account is calculated as:

 

Total value of your SMSF account minus (-) the tax-free component (that you just calculated above).

 

The taxable component of a superannuation interest in a taxed fund normally consists solely of an element taxed in the fund.

 

Now apply the proportioning rule

When your SMSF pays you out a lump sum or a pension, these payments will include both tax-free and taxable components. These are calculated in the same proportion that these components make up the total value of your SMSF.

 

Example: Lump Sum payment

John is 57 and withdraws $100,000 as a lump sum from his SMSF account on 1 September 2007. At this date, the total value of his SMSF account was $500,000. This included a tax-free component of $100,000, and a taxable component of $400,000. Therefore, his tax free proportion is:

 

100,000 (tax free component) divided by 500,000 (total account value) = 20%

This tax free proportion is then applied to his lump sum payment of $100,000:

20% x $100,000 = $20,000.

 

Hence, $20,000 of his $100,000 lump sum payout is tax free. The other $80,000 is taxable as per the tax rate table. If he has not taken out any benefits previously, the first $140,000 is tax free and as such he wont have any lump sum tax to pay this time around.

 

Example: Pension payment

John is 57 and started an account based pension of $25,000 per annum from his SMSF account on 1 September 2007. When John's pension began, the total value of his SMSF account was $500,000. This included a tax-free component of $100,000, and a taxable component of $400,000. Therefore, his tax free proportion is:

 

100,000 (tax free component) divided by 500,000 (total account value) = 20%

This tax free proportion is then applied to his pension payment of $25,000pa:

20% x $25,000 = $5,000.

 

Hence, $5,000 of his $25,000 pa pension is tax free. The other $20,000 is treated as normal assessable income, and is taxed at John's marginal tax rate, however with tax rebate equal to 15% of the taxable component (15% x $20,000) = $3,000 tax rebate.

 

Tax payable on $20,000 pa is approx $1,820.
Minus rebate of $3,000

Therefore, tax payable is zero.