Contributions caps and taxation of contributions
Higher tax on concessional contributions for very high income earners
Clients with income (for Div 293 purposes) exceeding $250,000 (not indexed) are subject to an additional 15% tax on part or all of their non-excessive concessional contributions.
Income for Division 293 purposes
The definition of income used for Division 293 tax purposes is an adjusted income - "income for Medicare Levy surcharge purposes". To determine whether a client is subject to an additional 15% Division 293 tax on all or some of their concessional contributions, this income is calculated as follows:
|Taxable income (ie assessable income less deductions)1
Amounts subject to family trust distribution tax
Reportable fringe benefits
Total net investment losses
'Low tax contributions' (generally non-excessive concessional contributions)
Less the low rate part of assessable super lump sum member benefits (excludes death benefit) received by a taxpayer under age 60 but who has reached preservation age (the low rate cap for 2018-19 is $205,000).
|Equals income for Div 293 purposes|
1 Excessive concessional contributions made from 1 July 2013 are included in taxable income.
What are low tax contributions?
In most cases, low tax contributions are simply concessional contributions that do not exceed the concessional contributions cap (see section 3.1), including superannuation guarantee, salary sacrifice, personal concessional contributions and defined benefit contributions (funded and unfunded).
Low tax contributions do not include transfers from foreign superannuation funds that are taxed in the receiving fund or rollovers of taxable component (untaxed element) from untaxed public sector funds.
Where excess concessional contributions are disregarded or reallocated under the 'special circumstances' provisions, they become low tax contributions for the financial year. In the case of excess contributions reallocated to a different financial year, they will become low tax contributions of the year they were originally made (not the year they are allocated to).
While excess concessional contributions are not low tax contributions (and therefore cannot be subject to the higher tax on contributions), excess concessional contributions made since 1 July 2013 form part of a client's income and count toward the $250,000 threshold.
Modifications for defined benefit interests
For superannuation interests that are identified as defined benefit interests, there is a modification to the way low-tax contributions are calculated. The low-tax contributions
for an income year are calculated as:
- Low-tax contributed amounts (that do not relate to a defined benefit interest)
- Subtract excess concessional contributions
- Add defined benefit contributions.
If a negative amount results from the calculation, then low-tax contributions are nil and, as a result, there is no Division 293 tax. A negative amount only arises where excess concessional contributions exceed the total of low-tax contributed amount plus defined benefit contributions.
For members of defined benefit funds, an actuary is required to calculate a notional level of employer contributions, which are also included. The method of determining the amount of defined benefit contributions for accruing members is set out in the Regulations.
The inclusion of defined benefit contributions in low-tax contributions ensures that a person with defined benefit interests is treated in a similar way to a person with accumulation interests for the purposes of the Division 293 tax. In defined benefit funds, employer contributions are typically not allocated to individual members defined benefit interests. Employer contributions are made in aggregate to the fund, based on actuarial advice, to ensure that there is enough money in the fund to pay benefits to members as they leave and benefit payments become due.
For more information of modifications for defined benefit interests for Division 293 tax refer to the ATO's Division 293 tax learner guide available on the ATO website.
State higher level office holders and Commonwealth justices and judges
For certain State higher level office holders, the general rules are modified so that low tax contributions do not include contributions made to a constitutionally protected super fund, except where they are made as part of a salary package arrangement.
A salary package arrangement in this situation is where a client has agreed for contributions to be made in return for a reduction in other remuneration (eg salary).
For a complete list of State higher level office holders, refer to Regulation 293.145.01 of the Income Tax Assessment Regulations 1997.
For Commonwealth justices and judges, the general rules are modified so that low tax contributions do not include defined benefit contributions made to a super scheme that was established under the Judges Pension Act 1968.
It is important to note that while the above contributions for certain state higher level office holders or Commonwealth justices and judges are excluded from the definition of low tax contributions (and therefore cannot be subject to additional tax), they are still included in this definition for the purposes of calculating whether the member has exceeded their $250,000 income threshold.
How much of a client's contributions are subject to the additional tax?
Division 293 tax is levied on a client's taxable contributions. A client will have taxable contributions where income for Div 293 purposes exceeds the $250,000 threshold during a financial year.
Taxable contributions are generally the amount of low tax contributions that sit above the $250,000 threshold. They are calculated as the lesser of:
- the client's low tax contributions
- the client's Division 293 income (including low tax contributions), less $250,000.
When working out taxable contributions, assume that low tax contributions form the top 'slice' of income.
Examples of taxable contributions for Division 293 purposes
The following table highlights the calculation of taxable contributions in a range of scenarios.
|Scenario 1||Scenario 2||Scenario 3||Scenario 4|
|Breakdown of super contributions:
|Total concessional contributions
Excess concessional contributions
|Low tax contributions||$25,000||$25,000||$25,000||$25,000|
|Division 293 income
Amounts subject to family trust distributions, reportable fringe benefits, and total net investment losses
Low tax contributions (from above)
|Income for Div 293||$255,000||$265,000||$295,000||$305,000|
|Excess of Div 293 income above $250,000 threshold||$5,000||$15,000||$45,000||$55,000|
|Taxable contributions (lesser of low tax contributions and amount above)||$5,000||$15,000||$25,000||$25,000|
|1. 9.5% x max earnings base of $54,030 per quarter for 2018-19
2. Includes excess concessional contributions made from 1 July 2013 as they are assessable income of the client.
How is Division 293 tax collected?
The additional tax on contributions for clients earning in excess of $250,000 is administered by the ATO and levied on the individual client in a similar way to excess contributions tax. Division 293 tax may be paid from a client's own money or, in certain circumstances, from their super interest using a release authority.
For clients with accumulation super accounts, the Commissioner will issue a notice of assessment, which is due for payment within 21 days. At the same time, the Commissioner will also provide a voluntary release authority to enable a client to withdraw an amount equal to this tax liability from their super fund. Payments in compliance with a release authority can be made from pensions and annuities as well as accumulation phase interests. A client may choose to use this release authority, or pay the tax personally. Funds released in accordance with a release authority are non-assessable non-exempt income.
For clients who have taxable contributions that relate to a defined benefit interest, the Commissioner will instead maintain a 'debt account' where the tax liability will be deferred to and accrue with interest. Clients are then able to make voluntary repayments of debt accounts at any time. Once the relevant defined benefit interest becomes payable, the amount that has accrued in the debt account must then be paid within 21 days. The Commissioner will also provide a voluntary release authority for the amount accrued in the debt account, which can only be given to the super provider that holds the defined benefit interest relevant to that debt account.
Where a client has multiple defined benefit interests, a separate debt account will exist for each interest. Where a client has an accumulation and defined benefit interest, the amount of additional tax that can be deferred to a debt account is generally calculated by looking at the proportion of taxable contributions that were made to a defined benefit interest.
Refund for former temporary residents
Temporary residents who depart Australia and receive a Departing Australia Superannuation Payment (DASP) are entitled to a refund of any additional tax paid under these rules.
The following elements must be satisfied in order for a former temporary resident to be entitled to a refund: --The person has made payments of any Division 293 tax
- They have received a departing Australia superannuation payment
- They have applied to the Commissioner in the approved form for the refund.
A refund is not available for assessed Division 293 tax for a period when a person is an Australian resident (but not a temporary resident) of Australia.
To apply for the refund, the former temporary resident must apply to the Commissioner in the approved form.
Last modified: Tuesday, November 13, 2018