Super and particularly your SMSF, is just TAX structure.
So what tax are you liable to pay, that all depends on the structure in which the income was generated? As you can see from the table below, this could vary from as little as 0% to 48.5%.
| Types of Tax Structures | Tax Rate |
|---|---|
| Individual | 48.5% |
| Company | 30% |
| Superannuation – Accumulation Phase | 15% |
| Superannuation – Pension Phase |
In this example, consider a company that holds an investment for over 10 years. It then sells that asset, making a capital gain of $200,000. The company receives no concessions from the ATO with regard to the capital gain and pays tax at 30% on the full amount of $200,000.
The total tax payable will be $60,000. What about for an individual?
You have sold an asset and you have an assessable capital gain of $200,000. Being an individual that has held the asset for longer than 12 months, the ATO offers you a discount of 50% on the capital gain amount of $200,000. Therefore your net gain is in fact $100,000.
This $100,000 is added to your assessable income and is taxed at your marginal tax rate, in this instance let's assume it's the highest tax rate of 48.5%.
Therefore total tax paid is $48,500 on the capital gain of $200,000. This is $11,500 cheaper than the company tax of $60,000.
So, what can an SMSF do about it?
Let's compare the same capital gain of $200,000, but we now have this gain within our brand new shiny SMSF. The gain is being made while the funds are still in accumulation, that is before we have access to our superannuation. SMSFs receive a discount of 1/3 of the capital gain, in this instance $66,667 and a net gain of $133,333.
The SMSF will then pay tax on this net gain at 15%, resulting in total tax payable of $20,000 on the capital gain of $200,000. This is $40,000 cheaper than the tax paid by the company and $28,500 cheaper than the tax paid by an individual with the same gain.
And finally, what if your SMSF was in the pension stage?
The fact that the SMSF is in the pension phase means that we have access to our superannuation and have met a condition of release e.g. retirement, disability, etc. Again the SMSF will receive a discount of 1/3 and this results in a net gain of $133,333.
However all this does not matter as an SMSF in pension phase does not pay any taxation on income and therefore pays $0 tax on the entire $200,000 capital gain.
Fairly obviously from this example, investments held and sold within an SMSF will provide you with the greatest tax savings, when compared with other tax structures such as companies, trusts or if the investment is held as an individual.
So you know the tax benefits, but you're still wondering if it's for you? Perhaps you need to discuss your situation with one of our specialist partners – you may be paying too much tax?
