Benefits not taxed, says Koim

BENEFITS paid out to members of superfunds are not taxed, according to the Internal Revenue Commission (IRC).
Commissioner-general Sam Koim was responding to superannuation contributions by employees to Nasfund and Nambawan Super.
“This is an area of taxation that can be quite complex and is sometimes confused with the taxation of termination payments,” he said.
Koim said on superannuation contributions by employees to superfunds, “there is no tax on the benefit when it is paid out”.
This is because the employee has already been taxed on this contribution when it is deducted from the pay.
But there can be tax on interest earned in the fund and other income derived from the investment of the employer contributions.
“The authorised superfunds pays tax at 25 per cent of their taxable income derived from this source, not at 30 per cent as some have claimed,” Koim said.
“Dividends derived by an authorised superannuation fund are exempt from dividend withholding tax (Section 189B (4) (f) of Income Tax Ac).
“The employer’s contributions are not taxable income to the authorised super fund.
“The reason is that the employer contribution is not income to the authorised super fund but is held in trust until distributed to the employee. At the time of distribution the employer contributions become income to the employee and hence are taxed.
“The employer contribution is effectively capped at 15 per cent of the fully taxable salary of the employee. Any amount in excess of 15 per cent is not an allowable deduction to the employer and does not attract any concessional rate of salary or wages tax.”