Accounting, Documentation, SMSF, Tax

Confusion over super tax reporting

Annual return SMSF Untaxed Tax-free Accounting

Misunderstanding the difference between taxable and tax-free components of superannuation benefits is causing some accountants to file incorrect annual returns for their clients.

Accountants are making errors when lodging the annual return on behalf of their SMSF clients due to confusion over how to allocate the taxable components of superannuation payments, a technical expert has said.

Speaking during a recent webinar reviewing common questions from advisers and clients, BT technical consultant Matt Manning observed some practitioners were struggling to distinguish between the tax-free and untaxed components of superannuation benefits and were reporting them incorrectly, leading to adverse outcomes for fund members.

“I dealt with one particular case recently where the client asked me why they are paying so much tax in their return. I took a quick look and they’re not a particularly high-income earner and they received a tax bill for $30,000. So what went on here?” Manning noted.

“One of the biggest errors I see [is] the accountant on a superannuation withdrawal has declared the tax-free component in the untaxed component, which does happen from time to time.”

He clarified accountants rarely need to allocate amounts to the untaxed component in an annual return as there are very few situations that require it.

“When does an untaxed element arise? Mostly where a death benefit is paid to a non-tax dependant that broadly contains insurance. So there’s been a deduction claimed on the fund for insurance or it’s an untaxed fund. They’re the only two ways we get an untaxed element,” he said.

“Unless one of those two things occurs, nothing should be going in the untaxed section of the tax return because that’s what we pay the high rate of tax on as opposed to something that’s just tax-free.

“This isn’t a matter of being pedantic with terminology. Some people refer to untaxed as not taxable or other terms and it’s just a recipe for disaster. Untaxed only means one of those two things.”

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