Why Tax Awareness is Important When Rolling Over to SMSF


There are instances where you may wish to roll over funds in a superannuation fund such as an industry or retail superannuation into a self-managed superannuation fund account. If you have just established an SMSF for investment purposes or as a retirement nest egg, then you may see the need of rolling over all your super benefits into such an account. Many account holders prefer SMSFs because they offer greater flexibility and control over their funds.

If you are planning to roll over funds into an SMSF, the first step that you should take is open an SMSF account. You can contact an SMSF professional, a professional accounting firm Melbourne has or even a financial planner to assist you with this procedure.

If you are hiring an accountant Melbourne has who can help you open a self managed superannuation fund account, make sure that they are licensed and accredited to provide you with credible SMSF advice. The SMSF professional should assist you in making sense of SMSF rules (these are generally included in the SMSF’s trust deed), the accounting records as well as in carrying out registration for superannuation and income tax purposes. After these processes are complete, you will now be ready to begin the rollover of your super benefits into your SMSF.

One step that is often overlooked by many are the tax implications of an SMSF rollover. Most people are generally unaware that they ought to pay taxes when transferring money into their SMSF from another super fund. Some may be aware but are bogged down by the complexity of the process. Failure to pay taxes on the funds received by an SMSF will eventually lead to issues with the Australian Taxation Office.

Making Sense of your SMSF Taxes

The superannuation funds in Australia can either be taxed or untaxed. Retail funds will generally be taxed while the government funds are generally untaxed. There are also super funds that offer members untaxed and taxed schemes. This can pose serious difficulties for many clients.

During a rollover, a concessional contribution such as personal contributions, employer contributions and salary sacrificed contributions will attract a tax rate of 15% when they are received by an SMSF. These are pre-tax contributions.

A 15% tax must also be paid by an SMSF on the investment earnings. This will be treated as the taxable component in the financial records of the SMSF and could attract some tax if the recipients will be aged below 60 and the investment earnings will have hit a certain threshold.

If the money is coming from an untaxed superfund, it will go into the records as an untaxed component in the SMSF’s financial records. This untaxed super fund contribution will attract a tax when the super benefits from the account to the beneficiaries of any age.

Whenever money is rolled over from a superfund that is untaxed into an SMSF account, the money that has been rolled over will have an untaxed component. This untaxed component will attract a flat tax rate of 49% if it exceeds $1.445 million. This amount is the cap for untaxed plans for the 2017 to 2018 financial year.

Once the 49% tax has been applied, the untaxed component will now be included as a tax-free component after rollover to SMSF. The 49% is the top marginal tax rate and is inclusive of the Medicare levy. For amounts below $1.445 million, the superfund pays a 15% tax.

The Math

Let’s assume you are planning to roll over your untaxed superannuation totaling $1.5 million into your SMSF and the complete amount is made of an untaxed component. If you take into account the 2017/8 untaxed plan cap of $1.445 million, you are left with a roll over amount of $55,000 that exceeds the cap. The withholding tax for your untaxed amount will subsequently be 49% of $55,000 which is $26,950.

On rollover, your untaxed superfund will report a tax-free component of $28,050 ($55,000 minus $26,950 tax) as well as an untaxed component of $1.445 million. The rolled over money will then incur a tax of 15%.

The most critical thing is to understand the kind of super fund that you will be rolling the money out of. A professional accounting firm Melbourne offers can help you make a clearance sense of your tax obligations when carrying out these rollovers.

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