ATO currently issuing Division 293 tax bills to eligible individuals
Division 293 tax was introduced from the 2012–13 year to reduce the tax concession on superannuation contributions for individuals with income greater than $300,000 a year, as announced in 2013’s Federal Budget.
How Division 293 tax is calculated
Division 293 tax is charged at 15% of an individual’s taxable concessional contributions above the $300,000 threshold (capped for 2012–13 at $25,000). For individuals who are members of a defined benefit fund, Division 293 tax may be calculated on notional contributions, which are not capped.
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.
To calculate your Division 293 tax, use the following: taxable income (assessable income less deductions), total reportable fringe benefits amounts, net financial investment loss, net rental property loss, amounts on which family trust distribution tax has been paid and super lump sum taxed elements with a zero tax rate. These elements are summed to give the income amount.
Low tax contributions also come into play. These are 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 super fund and include employer contributed amounts, other family and friend contributions, assessable foreign fund amounts, assessable amounts transferred from reserves and notional employer contributions.
On average, an income earner’s highest marginal income tax rate is 32.5%. Any super contributions made for the benefit of the individual are taxed at 15% when in the fund, effectively giving them a 17.5% concession on their super contributions.
Individuals with high incomes pay 45% income tax on annual income over $180,000. This was also the case for average income earners, super contributions made for the benefit of the individual that are taxable to the fund are taxed at 15%, ultimately giving them a 30% super concession.
Division 293 tax is applied to certain super contributions that effectively attract the 30% super concession, reducing it down to 15%. However, the tax rates mentioned above exclude the Medicare levy.
Payment of the Division 293 Tax is generally due 21 days after the Commissioner gives the notice of assessment. You can choose to use the release authority to have your fund pay the Division 293 tax or you can pay it out of your own pocket. The tax notice of assessment may also state that an amount of Division 293 tax is deferred. Taxable Division 293 contributions attributed to defined benefit superannuation interests are eligible for a deferred payment.
It pays to be in control of your super. Speak with a friendly professional by calling OBT in Gatton on 5452 2277. The key is to gain clarity around the Division 293 tax in order to understand its full impact.