A, T1, J and B Calculation of gross tax

Information on the calculation of gross tax.

Last updated 5 August 2024

A Taxable income

You wrote the SMSF's taxable income, or its loss, at O Taxable income or loss in section C.

Is the amount at O Taxable income or loss a loss?

No	Transfer the amount from O Taxable income or loss in section C.
Yes	Write 0 at A. Go to T1.

A is mandatory. If you leave A blank, you will have specified a zero amount.

T1 Tax on taxable income

Is the amount at A zero?

Yes	Write 0 (zero) at T1. Go to J.
No	Read on.

Is the SMSF a complying SMSF for the income year?

All assessable income for a non-complying SMSF is taxed at 45%, whether arm's length income, non-arm's length income or arising from a change in the SMSF's tax status.

Multiply A by 45%.

Write the result at T1.

Yes

Different tax rates apply to arm's length and non-arm's length income.

Add 45% of the lesser of (the 'Lesser of' calculation):
- U Net non-arm's length income (in Section B) plus the total non-arm's length income that arises due to general expenses (if any)
- Where, for each general expense, the amount of the non-arm’s length income is calculated as:
  - the difference between the amount of loss, outgoing or expense (revenue or capital in nature) expected to be incurred if the parties had been dealing at arm’s length and the amount of loss, outgoing or expense (revenue or capital in nature) actually incurred (zero if no loss, outgoing or expense was incurred), with the result multiplied by 2 (the ‘Twice the difference approach' amount)
    
    Note: Don't reduce this amount by any deduction, including the amount of general expense actually incurred and
  - the total taxable income for the year written at label O in Section C less any assessable contributions you have written at label R in Section B and adding any deductions against those contributions.
15% of (label A in section D less the result of the 'Lesser of' calculation above).
The result is the tax on the SMSF's taxable income before applying rebates, tax offsets, and credits. Write the result at label T1, then go to label J.

Label T1 is mandatory. If you leave label T1 blank, you will have specified a zero amount.

J Tax on no-TFN-quoted contributions

If the SMSF received no-TFN-quoted contributions (recorded at label R3 No-TFN-quoted contributions in section B), it pays extra tax on those contributions.

Did the SMSF receive contributions from a member who has not provided their TFN?

No	Write 0 at J. Go to B.
Yes	Read on.

Extra tax applies to no-TFN-quoted contributions. To work out the extra tax, multiply the no-TFN-quoted contributions by:

32% if the SMSF is a complying SMSF
2% if the SMSF is a non-complying SMSF.

Write the result at J.

All SMSFs, complying and non-complying, have an overall tax rate of 47% on no-TFN-quoted contributions:

complying SMSFs pay 15% (at T1) and 32% (at J), a total of 47%
non-complying SMSFs pay 45% (at T1) and 2% (at J), a total of 47%.

You must complete J. If you leave J blank, you specify a zero amount.

B Gross tax

Write at B the total of T1 and J. If the sum is zero, write 0 at B.

Example: Calculating B Gross tax (without non-arm's length income)

SMSF B is a complying SMSF. It does not have any non-arm's length income or no-TFN-quoted contributions.

SMSF B calculated its taxable income as $14,500 which it wrote in at O Taxable income or loss in section C and also at A Taxable income in section D.

SMSF B calculates its tax on taxable income at T1 to be $2,175 as follows:

Rate: 15%
Income: $14,500
Tax: $2,175

SMSF B does not have any no-TFN-quoted contributions so it writes $0 at J Tax on no-TFN-quoted contributions.

B Gross tax is the sum of T1 and J ($2,175 + $0).

In the SMSF annual return, SMSF B writes:

Section D Income tax calculation statement (without non-arm's length income)
Section D: Fields	Amounts $
A Taxable income	14,500
T1 Tax on taxable income	2,175
J Tax on no-TFN-quoted contributions	0
B Gross tax	2,175

End of example

Example: Calculating B Gross tax (with non-arm's length income)

SMSF BB is a complying SMSF. It has non-arm's length income but does not have any no-TFN-quoted contributions.

SMSF BB acquires accounting services (market value of $7,000) from Malia, one of the four members of SMSF BB, for $4,000. The accounting services were general in nature and did not relate to any particular asset or assets so are a general expense. The non-arm’s length expense provisions apply to this expense.

The total income of SMSF BB was $23,000 in rent from a rental property which is rented to Malia’s accounting business. Had the property been rented at arm’s length, it might have been expected to receive $15,000 in rent. The non-arm’s length income provisions apply to make the rental income non arm’s length income. Maintenance was carried out on the commercial property at arm’s length constituting $8,000 in eligible deductions.

Further, $10,000 assessable contributions were made in that income year to which a $1,000 deduction applies.

SMSF BB calculates its taxable income as $20,000. Made up of:

rental income of $23,000
plus assessable contributions of $10,000
less deductions for maintenance of $8,000
less deduction for accounting fees of $4,000, and
less deduction for assessable contributions of $1,000.

They show the total at label O Taxable income or loss in Section C and also at label A Taxable income in Section D. Net non-arm’s length income of $15,000 (rental income of $23,000 less $8,000 deductions for maintenance) was written at label U3 Net other non-arm’s length income and as a result is included at label U Net non-arm’s length income in Section B. The non-arm’s length income that has arisen as a result of the accounting expense is not disclosed at the labels U1, U2, U3, and U, instead it is taken into account in label T1 Tax on taxable income calculation.

Note: Due to the changes to the rules for non-arm’s length expenses for superannuation entities under the Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Act 2024External Link, the amount you have written as non-arm’s length income at label U Net non-arm's-length income in Section B may not be the amount that is taxed at the highest marginal rate. Instead, the amount calculated under the ‘Lesser of’ non-arm’s length component (NALC) calculation is taxed at the highest marginal rate.

In this example, the ‘lesser of’ NALC’ is calculated as the lesser of:

$21,000 – calculated as:
- label U at Section B, being the net rental income of $15,000 ($23,000 − $8,000) plus
- twice the difference amount of $6,000 (($7,000 − $4,000) × 2) and
$11,000 worked out as taxable income of $20,000 less $10,000 assessable contributions plus $1,000 deduction against assessable contributions.

Accordingly, the NALC is $11,000. Arm’s length income (low tax component) is $9,000 worked out as taxable income of $20,000 less the non -arm’s length income of $11,000.

SAF BB's calculation of tax on taxable income to show at T1
Description	Calculation	Tax
Tax on low tax component	15% of $9,000	$1,350
Tax on non-arms length component	45% of $11,000	$4,950
T1 Tax on taxable income	$1,350 + $4,950	$6,300

SMSF BB does not have any no-TFN-quoted contributions so it writes $0 at label J Tax on no-TFN-quoted contributions.

B Gross tax is the total of label T1 and label J($6,300 + $0).

In the SMSF annual return, SMSF BB writes:

Section D Income tax calculation statement (with non-arm's length income)
Section D: Fields	Amounts $
A Taxable income	20,000
T1 Tax on taxable income	6,300
J Tax on no-TFN-quoted contributions	0
B Gross tax	6,300