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# Example 6: Superannuation fund showing income at U Net non-arm's length income item 10

Last updated 28 July 2020

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

-

-

\$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

Start 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

-

-

\$2,500

-

-

Taxable income

\$11,400

45%

\$5,130

Gross tax

-

-

\$5,130

End of example

QC21714