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Loading ...Do I get a refund of tax when my super is negative?
May 9, 2008 by Josie Kay
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Q. Investment earnings in superannuation are taxed at 15%. What happens when your super fund makes a loss? (as may well be for me again this year). Is there no tax? Is there a credit (I wish) or is the loss offset in future years within the fund?
Josie’s answer: This is a really good question and one I am sure lots of visitors to www.askjosiekay.com and listeners of Money Matters will have similar thoughts.
I am also assuming that your superannuation contributions are invested in an industry or retail superannuation fund (in other words, they are managed funds). You are right in stating that investment earnings in superannuation funds are taxed at 15%, however, this the maximum they pay.
In reality, they are probably paying a lot less, particularly if they are invested in shares as they can offset imputation credits attached to shares (in simple terms, they get a refund of any company tax, up to 30%, that may have been paid on the dividend when it is passed on to superannuation fund).
Therefore, you are probably paying a lot less than 15% and may even get a rebate of excess franking credits. I know a bit technical, but this is a good thing.
Just like any investment, superannuation investments are taxed a couple of ways, i.e. on the income they receive e.g. dividends from shares, income or rent from property investments and on the growth when they sell e.g. value of share or property has risen in value.
The good news is that the maximum capital gains tax liability within a superannuation fund is 10%. Any losses that are crystalised are offset against any future gains. Perhaps an easy way to understand how tax works in a superannuation fund is to put income in one ‘bucket’, and capital gains or losses in another ‘bucket’.
They are treated differently from a tax perspective. From an investor’s perspective, you need to add the two together to get a clearer picture of how your investment is performing e.g. 6% income + negative 10% loss of capital = negative 4%.
Therefore, even if a superannuation fund has a negative return, tax may still be applicable. The thing to remember is that negative returns are ‘paper losses’, unless of course you decide to change where your money is invested, then you have either crystalised a gain or loss.
Your superannuation investment is usually valued daily, using a unit price and you are most likely to be buying units on a regular basis at different prices.
Therefore, to get a true picture of the return on your superannuation investment, you need to look at your statement. If you only looked at published returns, you are not getting a true indication of the return of your investment, as quoted returns assume there have been no regular contributions.
They are just a snapshot between two periods of time. For example, your super fund may quote that the six month return for the period ending 31 March 2008 is negative 10%. What they are saying is that if you had $10,000 invested on 1 October 2007 and held that investment until 31 March 2008, it would now be worth $9000.
If you made regular contributions, the return on your personal account would be different because you are buying units at different prices, usually monthly. It is also important to note that quoted returns usually reflect both income and growth from the investment, as well as the ‘after tax’ returns.
As you can see, difficult to answer concisely. If you want clarification on any of the above, don’t hesitate to ask another question. Good luck and thanks for being inquisitive and posting a question on www.askjosiekay.com.
Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs. Thanks for posting your question on www.askjosiekay.com. As you know, this is a free service and if you found it useful, I would be chuffed if you told your friends, family, workmates, local media outlets about www.askjosiekay.com – free financial advice by a Certified Financial Planner. No strings attached! If you wish to receive the latest personal finance advice and podcasts, subscribe by entering your email address. Wishing you happy money organisation.
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i think the question is can i claim a loss for super in my tax return against my annual income just as u could if you have other investments which make a loss
in other words if i have an income of 50k and my super fund loses 8k of my money is my income reduced to 42k for tax purposes
Perhaps you are right in that they were originally asking whether you can offset losses within superannuation against personal income. The answer is no because they are two separate entities. In other words, income generated under your own name is thrown into one bucket e.g. the John Smith bucket. Income or gains generated within a superannuation fund is thrown into another bucket e.g. XYZ Superannuation Fund. Different buckets, different tax rates and rules.
Our tax system is complex, and for the cynics, a great money spinner for accountants and financial advisers as you need to pay them to interpret.
Thanks for the comment. Josie Kay