Division 293 additional income tax on super contributions
What is this additional tax?
Division 293 of the Income Tax Act was introduced from the 2012–13 year to reduce the tax concession on superannuation contributions for individuals with income greater than the Division 293 threshold (it’s a wealth tax introduced by a Labour Government).
From 1 July 2017 onwards, the Division 293 threshold is $250,000, prior to this it was $300,000.
Division 293 additional tax can be charged at 15% on some or all off an individual’s taxable contributions to superannuation for the year. Your super fund has already paid 15% income tax on these contributions.
Whom does Division 293 tax apply to?
You're liable to pay Division 293 tax if you have taxable contributions for an income year to superannuation.
Division 293 tax is calculated based on your income for Div. 293 purposes
This information is collected from your income tax return once you have lodged it.
Division 293 tax uses super contribution information reported on member contribution statements and by SMSF’s when they lodge their annual income tax return to determine the taxable contributions made for a taxpayer.
The contributions counted for Division 293 tax purposes are your concessional (tax deductible) contributions.
Even though you may not normally have an income in excess of the Division 293 threshold, certain events can increase your income to this level for a particular year.
Division 293 might apply to you for only one year where:
o you receive an eligible termination payment
o you make a capital gain
o for another reason your income significantly increases
o you decide to salary sacrifice some of your income to super.
How much will your Division 293 tax be?
If your income for surcharge purposes plus low-tax contributions is over the Division 293 threshold of ($250,000), you are taxed at 15% on either your contributions, or the amount that is over the threshold – whichever amount is lower.
Your Division 293 tax amount is calculated by following these steps:
o determining your income for Div. 293 purposes.
o determining your low-tax contributions.
o adding your income for Div. 293 purposes and your low-tax contributions.
If the combined figure is greater than the threshold, you have taxable contributions. Taxable contributions will be the lesser of either:
o the low-tax contributions
o the amount above the threshold
The tax applied will be 15% of the taxable contributions.
Income for Div. 293 purposes $240,000
Low-tax contributions $ 15,000
Division 293 tax payable is lesser of low-tax contributions ($15,000) or the amount above the threshold ($5,000).
Division 293 tax payable is 15% of $5,000, therefore Division 293 tax payable is $750.
Division 293 calculation explained
The ATO use the following information to assess whether you’re liable to pay Division 293 tax:
o your income tax return to determine income for Div. 293 purposes
o MCS and SMSF annual returns to determine low-tax contributions.
Assessments for Division 293 tax are issued once we have your income tax return and an MCS or SMSF annual return.
Income for surcharge purposes
The components of this income calculation are:
o taxable income (assessable income minus allowable deductions)
o total reportable fringe benefits amount
o net financial investment loss
o net rental property loss
o net amount on which family trust distribution tax has been paid
o super lump sum taxed elements with a zero-tax rate.
These amounts are added up (except the super lump sum amount, which is subtracted) to give the income amount.
Low-tax contributions equal an individual's concessional contributions generally include:
o employer contributed amounts
o personal contributions for which you have been allowed a deduction
o defined benefit contributions.
These contributions are concessionally taxed at 15% within the super fund.
The total taxable super contributions amount is not the same as low-tax contributions. Taxable contributions are the lesser of the low-tax contributions and the amount in excess of the threshold.
Division 293 for members of a defined benefit super fund
The amount of defined benefit contributions represents the annual increase in a defined benefit superannuation account based on the benefit individuals are expected to receive when they leave the fund.
If you are a member of a defined benefit super fund, you do not have access to these contributions even if the Commissioner gives authority for amounts to be released. In these instances, you will still be assessed for Division 293 tax but the Commissioner will defer payment of the amount until a benefit is paid from your defined benefit fund.
Deferred Division 293 tax
Payment of Division 293 tax is deferred if raised on a defined benefit account from which no super benefit has yet become payable.
Money generally can't be released from a defined benefit account until a super benefit is paid (usually on retirement).
If you have more than one defined benefit account, all Division 293 tax attributed to those accounts will be deferred.
How will you know if your Division 293 tax debt is deferred?
If you're assessed as having a Division 293 tax debt, a notice of assessment will be issued to you. The notice of assessment will identify the deferred amounts, and any amounts due and payable within a specified timeframe.
Division 293 tax deferred to a debt account
The ATO establish a debt account for deferred Division 293 tax amounts.
End of year interest
Any deferred debts that are not paid by 30 June each year will attract end of year interest.
By voluntarily paying your deferred Division 293 tax by 30 June each year, you will avoid paying end of year interest.
How to voluntarily pay your deferred Division 293 tax
When a debt is raised and deferred, a release authority is sent to you linked with that debt account – this is the release authority that must be used if you choose to pre-pay your deferred debt.
You can voluntarily pay deferred Division 293 tax liabilities either:
o out of your own pocket
o by using the release authority
When you take an end benefit
A deferred Division 293 tax debt must be paid when a super benefit becomes payable from the defined benefit super account it is attributed to – this is known as the end benefit.