Taxation of Superannuation

Running head: TAXATION OF SUPERANNUATION
Taxation of Superannuation
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1TAXATION OF SUPERANNUATION
Table of Contents
Introduction:...............................................................................................................................2
Modifications relating to complying superannuation funds:.....................................................3
Deduction for receiving contributions:......................................................................................4
Deduction for making investment in Pooled Super Trust (PST) and life policies:................4
Personal contributions and roll-over amounts:......................................................................5
Transfer from the foreign funds:............................................................................................6
Contributions not taxable:......................................................................................................7
Exempted Income:.................................................................................................................8
No-TFN Contribution Income:..............................................................................................9
Capital gains:..........................................................................................................................9
Conclusion:..........................................................................................................................10
References:...............................................................................................................................11

2TAXATION OF SUPERANNUATION
Introduction:
The “division 295-1 of the ITAA 1997” lay down some extraordinary guidelines
regarding the application of tax on the superannuation entities together with the complying
funds. Division 295 lays down the procedure of calculating the taxable income of the
superannuation entities and recognize the components of the taxable income with the
objective of imposing correct tax rate1. Division 295 lay down that the process of computing
the no-TFN contributions income for the applicable entities during the income year with the
objective of imposing appropriate tax rate. In the middle of other things, the rules particularly
take into account specific contributions in the taxable earnings of the complying super funds.
The Division 295 also modifies the application of certain provision of the “ITAA
1997” regarding the income and deduction. The rewriting of division was not aimed at
changing the law as implemented under “Part XI ITAA 1936” but the intention is to make
more orderly provisions. In precise, the rules which are general to several forms of vehicle
relating to retirement presently has very general application, instead of having a separate rule
for every form of vehicle2. The advantage of Division 295 is evidently witnessed in the
rewriting of provisions that comprises of specific contributions in the taxable income.
1 Norbury, Michael. "Tax cases: Aussiegolfa and the student flat." Taxation in Australia 52.7
(2018): 388.
2 Butler, Daniel. "Superannuation: Managing tax losses in an SMSF." Taxation in
Australia 49.11 (2015): 699.

3TAXATION OF SUPERANNUATION
Modifications relating to complying superannuation funds:
Capital gains tax is regarded as the main code for imposing tax on gains. Under
“section 295-85” CGT forms the main code for evaluating the superannuation fund, with
three exceptions3. Particularly, the provision explains that sections that may assess a loss or
gains of a fund on the revenue account does not applies to the complying superannuation
funds until the loss or gains is in relation of currency exchange rate variation. More broadly,
it includes fixed interest investment and in some particular circumstances where the provision
of CGT may otherwise ignore the loss or gains.
The main reason behind the Division 295 is that a superannuation fund is mainly
levied tax in an identical manner that a person would have been provided that they owned the
asset in the fund directly. Division 295 states that except for two class of gains, all the gains
relating to superannuation fund would be levied under the rules of CGT and not in respect of
common assessment rules4. This may not be an issue for the small funds because majority of
the sales would be on the CGT account. Nevertheless, for the large superannuation funds, the
Division 295 makes sure that trading would be under the revenue account for the purpose of
tax.
As per the “Sub-division 295-C of the ITAA 1997”, explanation has been made
regarding the inclusion of contribution into the assessable income of complying superfund5.
3 Mahar, Frederick. "The distortive effects of the capital gains tax regime." Tax
Specialist 20.1 (2016): 16.
4 Figot, Bryce. "Non-arm's length SMSF loans= huge tax bill!." Taxation in Australia 48.11
(2014): 652.
5 Mahar, Frederick. "The retirement savings conundrum: Fortune favours the brave!." Tax
Specialist 18.1 (2014): 35.