Superannuation, Tax

‘Earnings’ not assessable income

superannuation earnings

The concept of earnings pertaining to the proposed 30 per cent tax for superannuation balances over $3 million is different to assessable income.

A technical specialist has emphasised the need for practitioners to understand what the definition of earnings means when looking to assist clients with managing the proposed 30 per cent tax to be applied to superannuation balances above $3 million.

“In relation to the earnings attributable to the amount of total superannuation balance the member has above $3 million, there’s going to be an additional 15 per cent tax rate applied to this concept of ‘earnings’. Now we shouldn’t be aligning that with taxable income,” Accurium head of education Mark Ellem noted during a technical webinar held today.

“Really we’ve got to separate the two concepts. One is the fund tax the fund will continue to pay and assess its taxable income the same way and it will continue to pay 15 per cent tax as long as it hasn’t got any non-arm’s-length income and as long as it remains a complying superannuation fund.

“The individual will then pay additional tax calculated using a rate of 15 per cent applied to this concept of ‘earnings’.”

He took the opportunity to clarify how this concept of ‘earnings’ will be determined.

“The ‘earnings’ are calculated in reference to the total super balance of the individual at the start and the end of the income year adjusted for withdrawals and contributions,” he noted.

“So it’s a base amount that is going to be used for the purpose of determining an amount that is going to be levied on the individual – the amount effectively of a tax concession that is going to be clawed back.”

According to Ellem, if the proposal is not introduced through a change to the regulations, for it to be implemented successfully an amendment to the Income Tax Assessment Act will be necessary and the updated legislation will have to pass through both houses of parliament.

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