Example 6a: Complying superannuation fund
The Elizabeth Superannuation Fund is a complying fund. However, it has income that must be taxed at more than 15%.
The fund received $10,000 of assessable contributions (R item 10), and $4,000 of private company dividends. All private company dividends are generally treated as non-arm's length income unless that income is consistent with an arm's length dealing - see U Net non-arm's length income for a definition of 'arm's length dealing'. Of the $4,000 private company dividends, $2,000 are treated as non-arm's length income. The net non-arm's length income is taxed at 45%.
Non-arm's length income expenses are $100. These expenses can be deducted only from the non-arm's length income. All non-arm's length income is shown on the tax return as a net amount of income.
The amount of taxable income remaining after taking into account the non-arm's length income is referred to as the low tax component.
The fund has also incurred $2,500 in administration expenses (shown at J item 11) that are not considered to be attributable to the earning of the non-arm's length income.
The superannuation fund's taxable income is $11,400.
Calculation element |
Amount |
Rate |
Tax |
|---|---|---|---|
Assessable income: Employer contributions, plus |
$10,000 |
- |
- |
Net private company dividends (arm's length dealing), plus |
$2,000 |
- |
- |
Net private company dividends (non-arm's length dealing) |
$1,900 |
- |
- |
Total assessable income, less |
$13,900 |
- |
- |
Deductions: Administration expenses |
$2,500 |
- |
- |
Taxable income |
$11,400 |
- |
- |
Components of taxable income: Non-arm's length component |
$1,900 |
45% |
$855 |
Low tax component (that is other taxable income) |
$9,500 |
15% |
$1,425 |
Gross tax |
- |
- |
$2,280 |
End of example
Example 6b: Non-complying superannuation fund
The income of non-complying superannuation funds is taxed at the rate of 45% (except for a tax rate of 46.5% which applies to no-TFN-quoted contributions).
If the Elizabeth Superannuation Fund was a non-complying fund, all of its income would be taxed at the same rate because it does not have no-TFN-quoted contributions. You would calculate its gross tax as follows:
Calculation element |
Amount |
Rate |
Tax |
|---|---|---|---|
Assessable income: Employer contributions, plus |
$10,000 |
- |
- |
Net private company dividends (including those treated as non-arm's length income) |
$3,900 |
- |
- |
Total assessable income, less |
$13,900 |
- |
- |
Deductions: Administration expenses |
$2,500 |
- |
- |
Taxable income |
$11,400 |
45% |
$5,130 |
Gross tax |
- |
- |
$5,130 |
End of example