Additional 15% tax for high-income earners
Division 293 tax is an additional tax on superannuation contributions which reduces the tax concession for individuals whose combined income and contributions are greater than the Division 293 threshold.
Concessional contributions made on or after 1 July 2017 for members with income greater than $250,000 may also be liable for an additional 15% Division 293 tax.
Exempt from Division 293 tax
- non-concessional contributions
- excess concessional contributions cap or excess contributions that is disregarded by the Commissioner
- members classified as state higher level office holders who make super contributions to a constitutionally protected fund (CPF)
- Justice of the High Court, or justice or judge of a court created by the parliament, who make super contributions to a super fund established under the Judge's Pension Act 1968
Notice of assessment
This is assessed by the Commissioner and is generally due and payable within 21 days of the Commissioner giving a notice of assessment to the member. For defined benefit interest, Division 293 tax is generally deferred for payment until 21 days after the first benefit is paid from the member's superannuation interest. Members are authorised to have amounts released from certain superannuation interests in order to pay the tax.
How is it determined?
A member is liable to pay Division 293 tax if they exceed the income threshold for the year. From 2017-18, a member's taxable contributions for an income year, if the sum exceeds $250,000, of:
- their "income for surcharge purposes" (less "reportable superannuation contributions"), and
- their "low tax contributions"
Income for surcharge purposes includes the following:
- taxable income (assessable income minus allowable deductions)
- reportable fringe benefits total
- reportable superannuation contributions, and
- total net investment losses, e.g. from negative gearing.
These amounts are added up (except the super lump sum and assessable first home super saver released amount, which are subtracted) to give the income amount
|Example: Income component
Elizabeth reports the following amounts on her tax return:
This provides Elizabeth an income component for Division 293 tax purposes of $301,000
Super contributions equal a member's concessional contributions minus any excess concessional contributions. The concessional contributions counted for Division 293 tax purposes include:
- employer contributed amounts
- other family and friend contributions
- assessable foraging fund amounts
- assessable amounts transferred from reserves
- personal contributions for which they have been allowed a deduction
- defined benefit contributions.
|Example: Excess concessional contributions
Elizabeth has Division 293 super contributed amounts of $50,000.
She has a concessional contribution cap of $25,000 - as a result, she has excess concessional contributions of $50,000 - $25,000 = $25,000.
Elizabeth's Division 293 super contributions are her concessional contributions ($50,000) minus the excess concessional contributions: $50,000 - $25,000 = $25,000
Taxable super contributions
The total taxable super contributions amount is not the same as Division 293 super contributions. Taxable contributions are the lesser of the Division 293 super contributions and the amount in excess of the threshold.
|Example: Lesser amount
For the 2017-18 income year, Elizabeth has a Division 293 income of $301,000 and Division 293 super contributions of $25,000.
The amount taxable contribution is the lesser of either:
As a result, the amount of Elizabeth's taxable contributions for the 2017-18 income year is $25,000 because it is the lesser of the two amounts.
What happens if a member has a defined benefit?
A members low tax contributions will be the total of any concessional contributions (by employer contributions or as salary sacrifice) to an accumulation account plus their defined benefit contributions, calculated in accordance with a formula specified by the government, less any excess concessional contributions. For the 2017-18 financial year, a members defined benefit contributions are their 'notional taxed contributions.' This is the same formula that is used to determined a members concessional contributions for the purposes of the excess contributions tax.
For some defined benefit members 'notional taxed contributions' are capped at the concessional contributions threshold. From the 2017-18 financial year, a members defined benefit contributions for the purpose of calculating their low tax contributions are equal to their 'notional taxed contributions', but without any cap applying. For instance, if a members defined benefit notional taxed contributions calculated without the concessional contribution cap applying is $40,000, and the concessional contribution cap is $25,000 and a cap applies to the member, then the defined benefit concessional contributions are $25,000 but members defined benefit low tax contribution are $40,000.
This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.
Last modified: Monday, November 23, 2020