Q. When a member of an SMSF is in the retirement phase and takes a pension, there is generally no tax payable by the member on the pension, or by the fund on the money derived from investments in the funds. What are the relevant provisions of ITAA1997 to support the above statement?
All legislative references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless specified otherwise.
Tax treatment of superannuation fund in pension phase
For a superannuation fund in the pension phase (ie paying current pensions), the relevant exemption provisions in the ITAA 1997 are:
- exempt current pension income (ECPI) – s 295-385, s 295-390 (note that when calculating the amount of ordinary income and statutory income of the SMSF that is exempt from income tax, non-arm’s length income and assessable contributions are excluded)
- disregarding capital gains and capital losses – s 118-12, s 118-320.
Tax treatment of member superannuation benefits
The age of the member is important. Assuming that the fund is a taxed fund, the tax treatment of the member’s pension benefits are governed by the following provisions:
- age 60 or more, the whole benefit is not assessable income and not exempt income (ie tax free) – s 301-10
- under age 60 but over the preservation age (ie 55 or more, depending on the actual date of birth), the tax free component is tax free – s 301-15
- under age 60 but over the preservation age, the taxable component is assessable income, with a 15 per cent tax offset – s 301-25
- under preservation age, the tax free component is tax free, but the taxable component is assessable income, with a 15 per cent tax offset only if it is a disability superannuation benefit – s 301-30, s 301-40. [08-02-2012]
Disclaimer
The date given in square brackets after each answer is the date on which the answer was sent out. The above information is based on CCH’s understanding of the law as at that date.
