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Tax on smsf precious metals

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Hey guys

So I started a smsf just for myself. I created a company for it and I am the sole trustee/director. Now I have a super account with 65k in it. im about to roll that into a smsf and buy mostly physical silver and gold with it. And as my work deposits in money during the year use that to pay for the managing of the fund and buy more metals.

Now my question relates to tax. Do I have to pay tax every year or just In like 30 years when I withdraw it?

Thanks Smiley Happy
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Devotee

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Hi User1

 

A good starting point to familiarise yourself with how an SMSF is taxed is probably to have a browse through the SMSF annual return.

 

Section B on page 4 is what you want to look at. This shows all of the different types of income that will count towards the assessable income of the fund.

 

Note labels R1 and R2 for assessable employer and personal contributions. I'm not sure which applies to you, but if contributions are being made to your SMSF that either you as an employer or you as an individual are claiming a tax deduction for in your income tax return - those contributions will be assessable income in the hands of the super fund. And that will be assessable income in the year the money is contributed, not in 30 years when you withdraw it.

 

With the earnings on assets owned by the fund, it depends on what kind of assets they are. Something like a term deposit that pays interest will be recorded at label C. Again, that'll be assessable income in the year the SMSF receives the interest payment.

 

For the capital gains or losses on assets, those are assessable income in the year the asset is sold and the gain or loss is crystallised. eg let's say you buy an artwork for $100,000 in 2017. You have it re-valued every 12 months and each year it's worth $10,000 more. In 2023 it's worth $160,000. You then sell it. In that year's tax return you declare the amount of the gain. The gain is $60,000 (ie $160,000 minus the $100,000 it was originally bought for). A 33% CGT discount applies for assets held for longer than 12 months, bringing the net capital gain down to $40,000. So in the tax returns for the first five years there's no tax payable on the artwork, as even though it's increasing in value it's not generating any income. When it's finally sold all of the value is realised, and the $40,000 net gain will be assessable income in year six.

 

A precious metal is the same kind of asset as an artwork. It won't generate any income until you sell it. So if you hang on to it for 30 years there won't be any assessable income relating to that asset for 30 years.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.

1 REPLY 1
Highlighted

Most helpful response

ATO Certified Response

Devotee

Replies 0

Hi User1

 

A good starting point to familiarise yourself with how an SMSF is taxed is probably to have a browse through the SMSF annual return.

 

Section B on page 4 is what you want to look at. This shows all of the different types of income that will count towards the assessable income of the fund.

 

Note labels R1 and R2 for assessable employer and personal contributions. I'm not sure which applies to you, but if contributions are being made to your SMSF that either you as an employer or you as an individual are claiming a tax deduction for in your income tax return - those contributions will be assessable income in the hands of the super fund. And that will be assessable income in the year the money is contributed, not in 30 years when you withdraw it.

 

With the earnings on assets owned by the fund, it depends on what kind of assets they are. Something like a term deposit that pays interest will be recorded at label C. Again, that'll be assessable income in the year the SMSF receives the interest payment.

 

For the capital gains or losses on assets, those are assessable income in the year the asset is sold and the gain or loss is crystallised. eg let's say you buy an artwork for $100,000 in 2017. You have it re-valued every 12 months and each year it's worth $10,000 more. In 2023 it's worth $160,000. You then sell it. In that year's tax return you declare the amount of the gain. The gain is $60,000 (ie $160,000 minus the $100,000 it was originally bought for). A 33% CGT discount applies for assets held for longer than 12 months, bringing the net capital gain down to $40,000. So in the tax returns for the first five years there's no tax payable on the artwork, as even though it's increasing in value it's not generating any income. When it's finally sold all of the value is realised, and the $40,000 net gain will be assessable income in year six.

 

A precious metal is the same kind of asset as an artwork. It won't generate any income until you sell it. So if you hang on to it for 30 years there won't be any assessable income relating to that asset for 30 years.

 

This is my personal view; I’m an ATO employee who chooses to help out here in my own time.