Glossary of Terms
Most superannuation interests are accumulation interests. The value of an accumulation interest is generally equal to the amount deposited on behalf of the member - either by the employer or as member contributions – plus any earnings on the balance, minus any administrative charges imposed by the fund.
Constitutionally protected fund
Constitutionally protected funds (CPFs) are untaxed super funds that do not pay income tax on contributions or earnings they receive.
CPFs are operated by some state governments in Australia for their employees. Under the Australian Constitution, state government assets cannot be taxed by the Commonwealth, so different arrangements apply to concessional contributions to CPFs.
Debt account discharge liability
The debt account discharge liability (DADL) for a superannuation interest for which we hold a deferred Division 293 tax debt account is the lesser of:
- the amount of the deferred Division 293 tax debt account at the earlier of the time the end benefit became payable and the notice of DADL is made, and
- the end benefit cap specified in a notice, given to the Commissioner, by the super fund holding the defined benefit interest.
Defined benefit contributions
An individual's defined benefit contributions for a financial year in respect of a defined benefit interest has the meaning given by regulation. This regulation is yet to be made.
Defined benefit contributions component
Defined benefit contributions component means the amount worked out as follows:
- For the corresponding year, is the lesser of:
- the low-tax contributions, and
- the total amount of the defined benefit contributions in all of the defined benefit interests for that financial year.
- Subtract from the result above the difference between:
- the taxable contributions for the income year, and
- the low-tax contributions for the financial year.
- If the amount is nil or a negative value, then there is no defined benefit tax for the income year.
Defined benefit interest
An individual holds a defined benefit interest within a super fund if all, or part, of the super benefits payable to them are defined by:
- reference to their salary or another person's salary at a particular date
- a specified amount or a specified conversion factor.
Defined benefit tax
Defined benefit tax for an income year is the amount worked out using the formula:
Where the defined benefit contribution component is worked out as follows:
Step 1: Take the lesser of the low-tax contributions and the total defined benefit contributions from this amount
Step 2: Subtract the difference between taxable contributions and the low-tax contributions.
A superannuation benefit is an end benefit for a superannuation interest if it is the first superannuation benefit to become payable from the interest, disregarding a benefit that is any of the following:
- a roll-over superannuation benefit paid to a complying super plan that is a successor fund
- a severe financial hardship benefit payment
- a benefit payable under compassionate grounds
- a family law super payment.
End benefit cap
The end benefit cap is a calculated figure provided by a super fund to us. This is done at the time the individual requests an end benefit be paid from a defined benefit interests within the super fund.
The end benefit cap amount is 15% of the employer-financed component of any part of the value of the super interest that accrued after 1 July 2012.
Income for surcharge purposes
Division 293 tax is calculated based on an individual's income for surcharge purposes, which is similar to the calculation for income for Medicare levy surcharge purposes. This information is collected from an individual's income tax return.
However, for Division 293 tax purposes, we disregard any reportable super contributions reported on the income tax return because these contributions are included in another part of the calculation.
Long-term bond rate
The long-term bond rate, for a period, means:
(a) the average, expressed as a decimal fraction to 4 decimal places (rounding up if the fifth decimal place is 5 or more), of the daily assessed Australian Government bond capital market yields in respect of 10-year non-rebate Treasury bonds published by the Reserve Bank in relation to the period, or
(b) if no such yields in respect of bonds of that kind were published by the Reserve Bank in relation to the period, the decimal fraction determined by the Minister by legislative instrument for the purposes of this definition in relation to the period.
Low-tax contributed amounts
Division 293 tax uses contribution information reported on an individual’s member contribution statement (MCS) and/or self-managed superannuation fund (SMSF) annual return to determine the total taxable super contributions. The contributions that are counted for Division 293 tax purposes generally include:
- employer-contributed amounts
- other family and friend contributions
- assessable foreign fund amounts
- assessable amounts transferred from reserves
- defined benefit contributions (funded and unfunded)
- a personal contribution for which a personal super contribution deduction is allowed.
These contributions are contributions that are concessionally taxed within the super fund. For this measure, they are known as low-tax contributed amounts.
Low-tax contributions are sometimes referred to as the taxable super contribution component of the Division 293 tax calculation. The total amount of taxable super contributions for an individual is not the same as low-tax contributions. In order to calculate which contributions are the low-tax contributions, we disregard any contributions that would attract certain additional tax.
For the 2012–13 year, we would disregard any contributions that are subject to excess concessional contributions tax which equates to an additional 31.5% on top of the 15% tax paid by the super fund.
For the 2013–14 year and onwards, excess concessional contributions are included in an individual's assessable income and taxed at their marginal tax rate (and are liable for the excess concessional contributions charge) on top of the 15% tax paid by the super fund. In these circumstances, to apply the additional 15% of Division 293 tax to those contributions would not be fair.
As a result, low-tax contributions are generally equal to total taxable super contributions (super contributions concessionally taxed in the fund) minus excess concessional contributions.
State higher level office holder
Under the regulations a state high-level officer holder is:
- a minister of the government of a state
- a member of the staff of a minister of the government of a state
- the governor of a state
- a member of staff of the governor of a state
- a member of the parliament of a state
- the clerk of a house of the parliament of a state
- the head of a department of the public service of a state or a statutory office holder of equivalent seniority, including a statutory office holder who is the head of an instrumentality or agency of a state
- a judge, justice or magistrate of the court of a state.
If at any time in the income year, an individual falls within the category of a state higher level office holder, they will be treated as being a state higher level office holder for the entire income year.
The individual will only pay Division 293 tax if they have taxable contributions. Taxable contributions are the lesser of the low-tax contributions or the amount above the $300,000 threshold.
Total earnings for Division 293 tax
Total earnings – a term used on the notice of assessment for Division 293 tax – is equal to your income for surcharge purposes for an income year, plus your total concessional contributions for the corresponding financial year.
Division 293 tax is the tax paid by very high income individuals which reduces the superannuation tax concession they receive.