Home » Business Articles » SMSF Articles » Tax updates » Division 293 tax – high income earners

Division 293 tax – high income earners

What is Division 293 tax?

Division 293 tax is the tax paid by high income individuals. It reduces the super tax concession they receive.

Since 1 July 2012, high income earners are generally liable to pay Division 293 tax if their income for surcharge purposes (disregarding their reportable super contributions) and their low-tax contributions are greater than $300,000. This is to reduce the tax concession received on concessional contributions from 30{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14} to 15{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14}.

From 1 July 2017, the income for surcharge purposes threshold is reduced to $250,000.

High-income earners receive a larger tax concession on super contributions compared to average income earners.

Concessional contributions are included within the assessable income of the super fund and are subject to a flat tax rate of 15{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14}, regardless of the member’s income.

These higher income earners essentially receive a 30{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14} tax concession on their super contributions, where average income earners are receiving 17.5{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14} tax concession.

To make the superannuation system fairer, Division 293 will only affect a person whose income for surcharge purposes, plus their low-tax contributions, are greater than $300,000. An additional 15{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14} tax will be imposed on those concessionally taxed super contributions, including defined benefit contributions that exceed the $300,000 threshold up to the concessional contributions cap.

There are exceptions for some Commonwealth judges and justices and State higher level office holders, where they meet certain criteria.

How is Division 293 tax calculated?

The ATO calculate your Division 293 tax amount by following these steps:

  1. Determining your income for surcharge purposes (from your tax return)
  2. Determining your low-tax contributions (from your superfund reporting)
  3. Adding your income for surcharge purposes and your low-tax contributions.
  4. If the combined figure is greater than $300,000 or $250,000 from 1 July 2017, you have taxable contributions. Taxable contributions will be the lesser of either
    1. the low-tax contributions
    2. the amount above the $300,000 or $250,000 from 1 July 2017 threshold.
  1. The tax applied will be 15{8c9c1ff2dd97e2d6259091c549649f3540ea2a8d186629f84b534d36b0353f14} of the taxable contributions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Legend

  • From 1 July 2017, replace $300,000 with $250,000

TC: taxable contributions

ISP: income for surcharge purposes

RSC: reportable super contributions

LTC: low-tax contributions

LTCA: low-tax contributed amounts

ECC: excess concessional contributions

You need to remember that your income for surcharge purposes is not only your taxable income but also includes the following: total reportable fringe benefits; net financial investment loss; net rental property loss; net amount on which family trust distributions tax has been paid; and concessional superannuation contributions made within the concessional cap for the financial year.

What do you need to do?

The ATO will issue you with an assessment after receiving the relevant information from your personal tax return and your superfunds’ reporting.

This will be payable within 21 days after the issue.

You will have an option to pay the liability either from your own pocket or by using a release authority, issued with the assessment, to pay the debt out of your superannuation fund account.

It is important for you to check the assessments as in some instances the superfund’s reporting has not been correct.

If you require assistance, don’t hesitate to call one of our boring accountants on 07 3160 7386.

We would love for you to follow us on Twitter so you get all our updates – you can find us at @XperionLive.

Also don’t forget to like us on Facebook – every boring accountant needs a friend.