We advise that the government has introduced an additional layer of contributions tax of 15% on concessional contributions of individuals who are high income earners.
The tax was proposed in the 2012 budget.
The new Division 293 tax will apply to individuals whose level of income exceeds $300,000 in any financial year.
Division 293 tax is being introduced from the 2012–13 year to reduce the tax concession on superannuation contributions for individuals with income greater than $300,000 a year. Division 293 tax will be charged at 15% of an individual’s taxable concessional contributions above the $300,000 threshold (which are capped for 2012–13 at $25,000).
Individuals will be liable for Division 293 tax if they have taxable contributions for an income year and their income for surcharge purposes plus their low-tax contributions (essentially concessional contributions) are greater than $300,000. The taxable contributions will be the lesser of the low-tax contributions and the amount above the $300,000.
The ATO have announced that Division 293 tax notices of assessment will start issuing from early February 2014 to those affected
How Division 293 tax is calculated:
An individual is generally liable to pay Division 293 tax if the sum of their income and their low tax contributions is greater than $300,000.
Income used
To calculate an individual’s income for Division 293 Tax purposes, we look at the individual’s income tax return and use:
o taxable income (assessable income less deductions)
o total reportable fringe benefits amounts
o net financial investment loss
o net rental property loss
o amounts on which family trust distribution tax has been paid
o super lump sum taxed elements with a zero tax rate.
These elements are summed (except the super lump sum amount, which is subtracted) to give the income amount.
Low tax contributions
Low tax contributions are generally contributions made in a financial year to a complying super fund in respect of the member which are included in the assessable income of the superannuation fund. We look at an individual’s member contribution statement (MCS) and/or self-managed super fund (SMSF) annual return and use:
o employer contributed amounts
o other family and friend contributions
o assessable foreign fund amounts
o assessable amounts transferred from reserves
o notional employer contributions, known as defined benefit contributions, when the fund is a defined benefit fund.
Excess concessional contributions have essentially lost their concessional status as, for the 2012–13 financial year they are taxed an additional 31.5% on top of the 15% taxed in the fund. In later financial years excess concessional contributions will be taxed at the individual’s marginal tax rate.
Excess concessional contributions are subtracted out of the low tax contribution amount for Division 293 tax purposes.
Calculation
To calculate the Division 293 tax liability, we:
12. Add the income and low tax contributions.
13. Compare the amount from Step 1 to the $300,000 threshold to identify any excess above the threshold.
14. Compare the low-tax contribution amount and the amount from Step 2. Take the lesser of the two amounts, which then become the taxable contributions.
15. Apply a 15% tax rate to the taxable contributions.
Example
16. An individual has an income of $291,000 and low-tax contributions of $25,000. The sum of these two amounts is $316,000.
17. $316,000 minus the threshold of $300,000 is $16,000.
Low-tax contributions is $25,000 and the excess is $16,000.
18. The lesser amount is $16,000, therefore this individual has taxable contributions of $16,000.
19. $16,000 x 0.15.
The amount of Division 293 tax levied on this individual equals $2,400.
