In recent weeks many high earning Australians have received assessments from the Tax Office informing them they need to pay their Division 293 Tax liability for the first time.
The former Labour Government’s 2013 Federal Budget included their attempt to make taxation on Superannuation “fairer”.
The legislation sees a “reduction of higher tax concession for contributions of very high income earners”. Put another way, from 1 July 2012 individuals will be liable to pay Division 293 Tax of an additional 15% if the sum of their income for surcharge purposes and low-tax contributions is greater than $300,000.
Therefore, prior to Division 293, an individual who was paying the highest marginal tax rate of 45% on their annual income received a concession of 30% – as they only paid 15% tax on their low-tax (generally employer) contributions to a complying superannuation fund. However, with Division 293 now in place, an individual with income of at least $300,000 will now be taxed at 30% on low-tax contributions to a complying superannuation fund, ultimately reducing their concession to 15%.
Does Division 293 Apply to You?
The ATO will use information from your income tax return and low-tax contributions reported by your superannuation fund to assess whether you are liable for Division 293 Tax. However, an assessment will generally not be issued until both pieces of information have been received by the ATO – therefore if you haven’t heard from the ATO it won’t necessarily mean you are not liable!
Below we have listed all items considered as income for surcharge purposes:
- Taxable income (assessable income less any deductions)
- Total reportable fringe benefit amounts
- Net financial investment loss
- et rental investment loss
- Amounts on which family trust distributions tax have been paid
- Super lump sum tax elements with zero tax rate
In addition to these items your low-tax (generally employer) contributions will be included.
Example 1:
For the 2012 – 2013 income year, David reported the following amounts on his Income Tax Return;
- Taxable income per his tax return of $290,000
- Total Reportable Fringe Benefits of $10,000
- Net amount on which family trust distribution tax has been paid of $15,000
- Low-tax (employer) contributions of $25,000
Therefore, David’s income for Division 293 purposes is $340,000, being the sum of the above amounts. As David’s income exceeds the $300,000 threshold, he will be assessed for Division 293 Tax.
In order to calculate the Division 293 tax, we must first determine the taxable amount, being the lesser of:
- Income for Division 293 purposes less the threshold of $300,000, or
- Low tax contributions.
Therefore the calculation of his tax assessment is as follows;
- Income for Division 293 purposes ($340,000 ) less the threshold of $300,000 = $40,000, or
- Low tax contributions = $25,000.
Accordingly, David’s assessable amount for the 2012-13 year is $25,000 because it is the lesser of the two amounts.
Assessed Division 293 Tax = $25,000 x 15% = $3,750.
How is it Paid?
Payment of Division 293 Tax is generally due 21 days from the date of the assessment notice. Individuals can choose to have their superannuation fund pay the tax or they can pay it out of their own pocket. Contributions attributed to a defined benefit superannuation fund are eligible to defer tax and will not need to be paid until the benefit end of the defined superannuation interest becomes payable. Your notice of assessment will state whether this option applies to you and will we need to inform the ATO if you have requested this option.
If you have any questions regarding Division 293 Tax, please contact your Altitude Adviser.
