• 5. Excess concessional contributions

    Depending on the income year, excess concessional contributions are subject
    to ECT under Division 292, or Fairer Taxation of Excess Concessional Contributions (FTECC) under Division 291. Some excess concessional contributions in the 2012–13 may be eligible for the Refund of Excess Concessional Contributions (RECC) under section 292-467 (which was repealed on 29 June 2013).

    Excess concessional contributions treated under ECT, RECC and FTECC all have additional tax applied and are not included in the low-tax contributed amount.

    The following formula is used to calculate a person’s low-tax contributions for an income year (section 293-25):

    low-tax contributed amounts – excess concessional contributions

    Concessional contributions can be disregarded or allocated to another income year by the Commissioner exercising his discretion for the purposes of ECT or FTECC. These contributions are not subject to additional tax and are no longer excess concessional contributions, so they are included in the low-tax contributed amount for the income year they were made.

    Excess concessional contributions made in the 2012–13 income year and how they relate to Division 293 tax are outlined below:

    Types of excess concessional contributions

    Is the amount a low-tax contribution?

    Is the amount included in income for surcharge purposes?

    Excess concessional contributions under ECT – section 292-20 (repealed 29/6/2013)

    No, it is subject to additional tax under ECT.

    The amount of excess concessional contributions is subtracted from the low-tax contributions amount.

    No.

    It is not included in income for surcharge purposes as it does not form part of the assessable income.

    Excess concessional contributions that have been refunded under RECC – section 292-467 (repealed 29/6/2013)

    No, it is subject to additional tax at the taxpayer’s marginal tax rate (inclusive of the Medicare levy) in the Income Tax Return.

    The amount of excess concessional contributions is subtracted from the low-tax contributions amount.

    Yes.

    This amount is included in income for surcharge purposes as it forms part of assessable income.

    Excess concessional contributions that have been disregarded under Commissioner’s discretion – section 292-465 (repealed 29/6/2013)

    Yes, it is a low-tax contribution that is not subject to additional tax.

    The disregarded amount is not subtracted from the low-tax contributions amount.

    No.

    It is not included in income for surcharge purposes as it does not form part of the assessable income.

    Excess concessional contributions that have been allocated to another income year under Commissioner’s discretion – section 292-465 (repealed 29/6/2013)

    Yes, it is a low-tax contribution that is not subject to additional tax.

    The reallocated amount is not subtracted from the low-tax contributions amount.

    For the purposes of Division 293 tax, the
    re-allocated amount is only included in low-tax contributions in the year the contributions were made and not the year it is re-allocated to.

    No.

    It is not included in income for surcharge purposes as it does not form part of the assessable income.

    Excess concessional contributions made in the 2013–14 and later income years and how they relate to Division 293 tax are outlined below:

    Types of excess concessional contributions

    Is the amount a low-tax contribution?

    Is the amount included in income for surcharge purposes?

    Excess concessional contributions under FTECC – section 291-20

    No, it is subject to additional tax at the taxpayer’s marginal tax rate (inclusive of the Medicare levy) in the Income Tax Return.

    The amount of excess concessional contributions is subtracted from the low-tax contributions amount.

    Yes.

    This amount is included in income for surcharge purposes as it forms part of assessable income.

    Concessional contributions disregarded for the purposes of FTECC by exercising the Commissioner’s discretion under section 291-465

    Yes, it is a low-tax contribution that is not subject to additional tax.

    The disregarded amount is not subtracted from the low-tax contributions amount.

    No.

    It is not included in income for surcharge purposes as it does not form part of the assessable income.

    Concessional contributions allocated to another year for the purposes of FTECC by exercising the Commissioner’s discretion under section 291-465

    Yes, it is a low-tax contribution that is not subject to additional tax.

    The reallocated amount is not subtracted from the low-tax contributions amount.

    For the purposes of Division 293 tax, the re-allocated amount is only included in low-tax contributions in the year the contributions were made and not the year it is re-allocated to.

    No.

    It is not included in income for surcharge purposes as it does not form part of the assessable income.

     

    Example 5.2: Calculation of low-tax contributions – Accumulation interests and refunded excess concessional contributions

    Mark only has one superannuation interest. It is not a defined benefit interest. Concessional contributions made on Mark's behalf are $40,000 in the 2012–13 income year.

    He has excess concessional contributions of $15,000 ($40,000 minus $25,000) because his concessional contributions cap for the 2012–13 income year is $25,000.

    His low-tax contributions are $25,000 – effectively his concessional contributions ($40,000) reduced by his excess concessional contributions ($15,000).

    No further calculations are required to work out Mark's low-tax contributions because special rules for calculating his low-tax contributions do not apply to him.

    The $15,000 of excess concessional contributions is also not included in the $300,000 threshold to determine whether Mark has taxable contributions.This is because excess concessional contributions are not only excluded from amounts of low-tax contributions but also from the income test (income for surcharge purposes less reportable superannuation contributions).

    End of example

     

    Example 5.3: Calculation of low-tax contributions – accumulation interests and disregarded concessional contributions

    Assume the same facts as Example 5.1, except that Mark's concessional contributions (and so his low-tax contributed amounts) are $30,000.

    He has excess concessional contributions of $5,000.

    He accepts an offer by the Commissioner to have the excess concessional contributions disregarded for ECT and instead included in his assessable income.

    His fund releases 85% of the amount of his excess contributions to the Commissioner, and the Commissioner later refunds part of that amount to him.

    His low-tax contributions are still $25,000, because his contributed amounts ($30,000) are reduced by the amount of disregarded excess concessional contributions ($5,000), since they are treated the same as other excess concessional contributions for the purpose of determining low-tax contributions.

    The fact that the $5,000 was disregarded as being excess concessional contributions – because the Commissioner made a determination and Mark is not liable for ECT on those contributions – is ignored.

    However, the $5,000 is included in his assessable income, and in income for surcharge purposes, so it is part of the $300,000 threshold to determine whether he has taxable contributions.

    There is no double counting because the amount is not included in low-tax contributions.

    End of example

     

    Example 5.4: Calculation of low-tax contributions: accumulation interests and reallocated concessional contributions

    Richard has concessional contributions of $30,000 in the 2012–13 income year.

    He has excess concessional contributions of $5,000. However, the Commissioner makes a determination to reallocate $5,000 concessional contributions from the 2012–13 income year to the 2013–14 income year for the purposes of ECT.

    2012–13 income year

    His low-tax contributions for the 2012–13 income year is equal to the amount of concessional contributions – $30,000.

    This is because concessional contributions reallocated to the 2013–14 income year due to the Commissioner's determination made for the purposes of ECT are not included in excess concessional contributions in 2012–13 (that is, in the year that they were made) and, as a result, are not subtracted from low-tax contributed amounts for determining low-tax contributions in that year.

    The Commissioner's determination made for the purposes of ECT does not have the effect of reallocating the contributions for the purposes of low-tax contributions.

    Because the $5,000 in reallocated concessional contributions are included in low-tax contributions for the 2012–13 income year, they are also included in the $300,000 threshold test to determine whether he has taxable contributions for Division 293 tax in 2012–13.

    2013–14 income year

    Richard’s concessional contributions of $5,000, that were reallocated from the 2012–13 income year, and instead allocated to the 2013–14 income year due to the Commissioner's determination made for the purposes of ECT, count towards his concessional contributions cap of $25,000 for the 2013–14 income year for the purposes of ECT.

    Concessional contributions actually made on his behalf amount to $23,000 in the 2013–14 income year.

    However, for ECT purposes, concessional contributions for the 2013–14 income year also include the $5,000 reallocated by the Commissioner from the 2012–13 income year. His total concessional contributions for the purposes of ECT are $28,000.

    He has excess concessional contributions of $3,000 in the 2013–14 income year. This amount is subject to excess concessional contributions tax, so it is subtracted as excess contributions from low-tax contributed amounts for the purposes of calculation of the low-tax contributions.

    His low-tax contributions amount is $20,000 in the 2013–14 income year, which is $23,000 in low-tax contributed amounts (effectively Richard's concessional contributions made in the 2013–14 income year) minus $3,000 in excess concessional contributions.

    Because the $5,000 reallocated concessional contributions are not included in low-tax contributions for the 2013–14 income year, they are also not included in the $300,000 threshold test to determine whether he has taxable contributions for Division 293 tax in 2013–14.

    End of example

     

    Example 5.5: Calculation of low-tax contributions – both a defined benefit interest and an accumulation interest – excess concessional contributions

    Sonia holds both a defined benefit interest and an accumulation interest.

    Her contributions for the 2013–14 income year are as follows:

    • accumulation interest
    • concessional contributions of $40,000 (her low-tax contributed amounts are the same amount)
    • Defined benefit interest (ignoring the special grandfathering rules)
    • notional taxed contributions of $30,000 for the purposes of FTECC
    • defined benefit contributions of $30,000 for the purposes of Division 293 tax.

    Case 1: ECT grandfathering does not apply.

    Sonia's notional taxed contributions in respect of her defined benefit interest are not eligible for the special arrangements which apply for FTECC to limit the notional taxed contributions to her concessional contributions cap.

    Sonia has $45,000 in excess concessional contributions for FTECC purposes – $40,000 of concessional contributions for her accumulation interest, plus $30,000 (notional taxed contributions) for her defined benefit interest, minus her concessional contributions cap of $25,000.

    Sonia's low-tax contributions are $25,000 for the 2013–14 income year, calculated as follows:

    • Step 1 – $40,000 in low-tax contributed amounts to her accumulation interest
    • Step 2 – minus $45,000 in excess contributions for the purposes of FTECC
    • Step 3 – plus $30,000 in defined benefit contributions in respect of her defined benefit interest.

    ECT for concessional contributions was repealed from 1 July 2013 and was replaced with FTECC under Division 291.

    End of example

    Exercise 6

    Work it out

    Select all that apply:

    Which of the following excess concessional contribution amounts are included in a person’s low-tax contributions?

    (a) Excess concessional contributions subject to ECT.

    (b) Excess concessional contributions that have been refunded.

    (c) Concessional contributions disregarded for the purposes of ECT by the Commissioners discretion.

    (d) Concessional contributions allocated to another year for the purposes of ECT under the Commissioner’s discretion.

    Answer 6

    Exercise 7

    Work it out

    Select all that apply:

    Which of the following excess concessional contribution amounts are included in a person’s $300,000 threshold?

    (a) Excess concessional contributions subject to ECT.

    (b) Excess concessional contributions that have been refunded.

    (c) Concessional contributions disregarded for the purposes of ECT by the Commissioners discretion.

    (d) Concessional contributions allocated to another year for the purposes of ECT under the Commissioner’s discretion.

    Answer 7

    6. Assessment of Division 293 tax

    6.1 Summary of assessment process

    6.2 Accumulation of interests

    6.3 Defined benefit interests

    6.4 Defined benefit tax

    6.5 Determination of deferred Division 293 tax

    6.6 Debt account

    6.7 Debt account discharge liability

    6.8 Objection.

    In order to make an assessment for Division 293 tax, the Commissioner requires information contained in the:

    • person’s income tax return
    • member contributions statement (MCS) and/or self-managed super fund (SMSF) annual return (SAR).

    The time at which assessed Division 293 tax becomes due and payable differs, depending on whether the amount assessed is attributable to an accumulation interest or a defined benefit interest.

    As outlined in section 293-65External Link, Division 293 tax attributed to accumulation interests is due and payable 21 days after the Commissioner gives a person a notice of assessment of the amount of tax payable for an income year.

    Division 293 tax attributed to a defined benefit interest can be deferred. As outlined in section 133-10External Link of Schedule 1 to the TAA, the Commissioner must make a deferral determination as soon as practicable after making an assessment, or amending an assessment, of Division 293 tax. A person must be given a notice in writing of the determination which may include two or more determinations.

    Where a person has a defined benefit interest, the debt will be deferred until such time an end benefit becomes payable from that interest, from their fund. When the person advises their fund of their intention to take their end benefit, the fund must send the Commissioner the completed form End benefit notice – superannuation provider Division 293 tax (NAT 74728), containing the person’s end benefit cap amount. The ATO uses this information to issue the person with their deferred debt account liability. This is due and payable at the end of 21 days after the day the person’s end benefit is paid. Where a person with a Division 293 tax liability dies, the Commissioner issues the assessment in the same way as if the person had not died, but without a release authority. As outlined in section 133-105, in these situations the deceased's legal personal representative is liable to pay the liability from the deceased's estate. The liability is worked out in the same way as if the deceased was liable to pay the Division 293 tax.

    6.1 Summary of assessment process

    The following diagram summarises the assessment and payment process:

    Assessed Division 293 Tax = Taxable contrivutions x 15%

    6.2 Accumulation interests

    Assessed Division 293 tax is due and payable 21 days after the day the Commissioner gives a notice of assessment (or amended assessment).

    As outlined in section 293-75, amounts that remain unpaid after that period are subject to the general interest charge (GIC). The Commissioner may remit the GIC where appropriate, having regard to the existing remission guidelines.

    As outlined in section 135-10 of Schedule 1 to the TAA, a release authority is issued to the person by the Commissioner which they can use to authorise a super provider to release an amount from a super interest (other than a defined benefit interest) of a person to pay some or all of the assessed Division 293 tax that is due and payable.

    A person may also pay their Division 293 tax liabilities from other sources, such as after-tax income.

    Exercise 8

    Work it out

    Select all that apply:

    What does the Commissioner require to make an assessment for Division 293 tax?

    (a) MCS and/or SAR.

    (b) Super fund statement.

    (c) Notice of Assessment.

    (d) Excess Concessional Contribution Assessment.

    (e) A person’s income tax return.

    Answer 8

    Exercise 9

    Work it out

    Select the correct response:

    Generally, after the Commissioner gives a person notice of the assessment of the amount of tax payable for the income year, how many days after is the Division 293 tax due and payable?

    (a) 7 days.

    (b) 14 days.

    (c) 21 days.

    (d) 28 days.

    (e) 35 days.

    Answer 9

    6.3 Defined benefit interests

    The payment of a Division 293 tax liability for contributions attributable to defined benefit interests is deferred until 21 days after the first benefit (the end benefit) is paid from the super interest.

    It is deferred because generally funding for a member’s benefits in defined benefit funds are pooled and it would be difficult to adjust a member’s benefit if a payment was made out of the fund to enable Division 293 tax to be paid for a member.

    In contrast, member benefits in accumulation interests are attributed to each member and a member’s benefits can be reduced if a payment is made from the fund under a release authority to pay the liability for Division 293 tax.

    6.4 Defined benefit tax

    Defined benefit tax is a proportion of a person’s total Division 293 tax because defined benefit contributions are included in the calculation of total taxable contributions.

     The person’s Division 293 tax for the income year is multiplied by the sum of the defined benefit contribution component divided by the taxable contributions for the income year.

    A person’s defined benefit tax is worked out in accordance with the following formula (in section 133-15 of Schedule 1 to the TAA):

    The defined benefit contribution component means the amount worked out as follows:

    Step 1

    Work out the lesser of the person’s:

    • low-tax contributions, and
    • total of all defined benefit contributions.

    Step 2

    Work out the difference (if any) between:

    • the person’s taxable contributions, and
    • low-tax contributions.

    A difference may exist because of the $300,000 threshold (refer to subsection 293-20(1)).

    The defined benefit contribution component calculation can also be shown as:

    The lesser of the person’s low tax contributions and the total of all their defined benefit contributions, minus the sum of the person’s low tax contributions less their taxable contributions.

    If the calculated defined benefit contribution component is nil, or a negative amount, no part of the Division 293 tax for the income year is defined benefit tax.

    One or more defined benefit interests

    If a person’s low-tax contributions for an income year are only defined benefit contributions (the only super interest to which contributions were made during the income year is a defined benefit interest), their Division 293 tax liability for the corresponding income year will be defined benefit tax.

    If a person has more than one defined benefit interest to which the defined benefit tax is attributable, the defined benefit tax is attributed to each interest in proportion to the total defined benefit contributions for all of those interests.

    A separate deferred debt account will be kept for each defined benefit interest that incurs the defined benefit tax. The ATO will maintain these account(s).

    Defined benefit and accumulation interests

    If a person’s low-tax contributions for an income year include contributions to defined benefit and accumulation interests, special rules are required to assign tax between the super interests.

    The appropriate amount of tax must be attributable to the accumulation interest, and only the remaining amount of tax (if any) is determined to be deferred to a debt account.

    This is achieved by the calculation of the defined benefit contribution component in the formula set out above.

    Deferral of defined benefit tax

    As outlined in section 133-110External Link of Schedule 1 to the TAA, defined benefit tax will not be eligible to be deferred to a debt account if, at the time the determination is made, either a:

    • super benefit (referred to as the end benefit) has become payable from the super interest to which the defined benefit tax is attributable, or
    • notice of debt account discharge liability has been made in relation to the super interest to which the defined benefit tax is attributable.

    The Commissioner will not defer the tax where no part of Division 293 tax is defined benefit tax.

    Example 6.1: defined benefit tax – no attribution between defined benefit interest and accumulation interest

    John holds both a defined benefit interest and an accumulation interest.

    For the 2013–14 income year, John has:

    • concessional contributions made to his accumulation interest $15,000
    • defined benefit contributions for the purposes of Division 293 tax for the defined benefit interest $25,000
    • notional taxed contributions for the purposes of excess concessional contributions tax for this defined benefit interest $25,000
    • income for surcharge purposes (less reportable super contributions) $295,000
    • excess concessional contributions (concessional contributions in excess of his cap, or $40,000 – $25,000) $15,000
    • low-tax contributions $25,000.

    Taxable contributions for the 2013–14 income year $20,000

    This is the amount by which John’s low-tax contributions for the income year ($25,000) and the income for surcharge purposes ($295,000) corresponding to the income year exceed the $300,000 threshold.

    Division 293 tax for the 2013–14 income year $3,000

    • 15% x taxable contributions
    • 15% x $20,000
    • = $3,000

    Defined benefit contribution component

    Step 1: The lesser of:

    • low-tax contributions, and $25,000
    • total defined benefit contributions $25,000

    Because both amounts are the same, the result is $25,000.

    Low-tax contributions for the 2013–14 income year:

    • low-tax contributed amounts for the income year $15,000
    • subtract excess concessional contributions $15,000
    • add defined benefit contributions $25,000

    John’s low-tax contributions are equal to the amount of his defined benefit contributions, so all of his Division 293 tax is defined benefit tax. This is because his low-tax contributed amounts for accumulation interests ($15,000) are equal to his excess concessional contributions ($15,000).

    So, only defined benefit contributions ($25,000) remain.

    Step 2: Taxable contributions – low-tax contributions

    • = $25,000 – $25,000
    • = $0.

    John’s defined benefit contribution is calculated as Step 1 – Step 2:

    • = $25,000 – $0
    • = $25,000.

    DEFINED BENEFIT TAX $3,000

    The proportion of the Division 293 tax that is attributed to the defined benefit interest is calculated using the formula:

    Division 293 tax for the income year x (Defined benefit contribution component ÷ Taxable contributions for the income year)

    So, for the 2013–14 income year, John’s defined benefit tax is:

    = $3,000 x ($25,000 ÷ $25,000)

    Where the calculated defined benefit contribution component is nil, or a negative amount, no part of the Division 293 tax for the income year is defined benefit tax.

    John has yet to receive any end benefit in relation to his defined benefit super interest. As a result, all of his defined benefit tax is eligible to be deferred to a debt account.

    John will receive an assessment for Division 293 tax for $3,000. Of this amount, the Commissioner will make a determination of $3,000 defined benefit tax deferred to a debt account.

    End of example

     

    Example 6.2: defined benefit tax – attribution between defined benefit interest and accumulation interest

    Mary holds both a defined benefit interest and an accumulation interest.

    For the 2013–14 income year, Mary has:

    • low-tax contributed amounts for her accumulation interest $15,000
    • defined benefit contributions for her defined benefit interest $10,000
    • income for surcharge purposes (less reportable super contributions) $295,000
    • excess concessional contributions $0
    • low-tax contributions $25,000.

    Taxable contributions for the 2013–14 income year $20,000

    This is the amount by which Mary’s low-tax contributions ($25,000) and the income for surcharge purposes ($295,000) exceed the $300,000 threshold.

    Division 293 tax for the 2013–14 income year $3,000

    Mary’s assessed Division 293 tax is calculated as:

    • 15% x taxable contributions
    • 15% x $20,000
    • = $3,000

    Defined benefit contribution component: $5,000

    Step 1: The lesser of:

    • low-tax contributions, and $25,000
    • total defined benefit contributions $10,000

    The lesser amount is $10,000.

    Step 2: Taxable contributions – low-tax contributions

    • = $25,000 – $20,000
    • = $5,000.

    Mary’s defined benefit contributed is calculated as Step 1 – Step 2:

    So, $10,000 – $5,000 = $5,000.

    DEFINED BENEFIT TAX $750

    Mary’s defined benefit tax is 15% of $5,000 = $750.

    The proportion of the Division 293 tax that is attributed to the defined benefit interest is calculated using the formula:

    Division 293 tax for the income year x Defined benefit contribution component 

    Taxable contributions for the income year

    For the 2013–14 income year Mary’s defined benefit tax is:

    • = $3,000 x $5,000
    • $20,000
    • = $750.

    Based on this calculation, Mary’s taxable contributions are attributed first to her accumulation interests, and the remaining part to her defined benefit interest.

    She has yet to receive any end benefit in relation to her defined benefit super interest. As a result, her defined benefit tax is to be deferred to a debt account.

    Mary will receive an assessment for Division 293 tax for $3,000. The Commissioner will make a determination that $750 of this amount is defined benefit tax deferred to a debt account for the defined benefit interest. The remainder of the assessed Division 293 tax of $2,250 is due and payable 21 days after the Commissioner gives the notice of assessment.

    End of example

     

    Example 6.3: attributing defined benefit tax to multiple defined benefit interests

    Nick has two defined benefit interests, one in Fund A and one in Fund B. For the 2013–14 income year, the following defined benefit contributions were made:

    • Fund A – $10,000, and
    • Fund B – $15,000.

    For the 2013–14 income year, Nick has:

    • income for surcharge purposes (less reportable contributions) $295,000
    • low-tax contributions ($10,000 + $15,000) $25,000
    • taxable contributions ($295,000 + $25,000 - $300,000) = $20,000
    • Division 293 tax (taxable contributions x 15%) ($20,000 x 15%) $3,000.

    Deferred payment of Division 293 tax applies to both interests.

    The defined benefit tax attributed to the interest in Fund A is:

    • $3,000 x ($10,000 / $25,000) = $1,200.

    The defined benefit tax attributed to the super interest in Fund B is:

    • $3,000 x ($15,000 / $25,000) = $1,800.

    The Commissioner makes two determinations of defined benefit tax deferred to a debt account because deferred payment of the tax applies to both interests.

    The amount of assessed Division 293 tax that is deferred to a debt account for the interest in Fund A is $1,200; for the interest in Fund B, the amount is $1,800.

    Nick will receive a notice of assessment for assessed Division 293 tax of $3,000.

    He will receive a determination of defined benefit tax deferred to a debt account of $1,200 for his interest in Fund A, and a second determination of defined benefit tax deferred to a debt account of $1,800 for his interest in Fund B.

    None of Nick’s assessed Division 293 tax is due and payable until an end benefit is payable from the relevant defined benefit interest.

    End of example

    Exercise 10

    Work it out

    Is the following statement true or false?

    If a person’s low-tax contributions for an income year include accumulation and defined benefit interests, they are all allocated to defined benefit interests.

    Answer 10

    Exercise 11

    Work it out

    Is the following statement true or false?

    Defined benefit tax needs to be attributed to each defined benefit interest as a separate debt account is maintained for each defined benefit interest.

    Answer 11

    6.5 Determination of deferred Division 293 tax

    In accordance with section 133-10External Link of Schedule 1 to the TAA, the Commissioner must make a determination of tax deferred to a debt account as soon as practicable after making an assessment (or amended assessment) of Division 293 tax for an income year for which a person has defined benefit tax.

    The determination sets out how much of the defined benefit tax has been deferred for later payment. The deferred payment will be debited to a debt account, which the ATO will keep.

    Where a person has defined benefit tax that is deferred to a debt account for two or more defined benefit interests in an income year, the Commissioner may include two or more determinations in the same notice.

    The Commissioner will generally issue the determination notice with the notice of assessment of the Division 293 tax amount.

    The determination includes information on the amount of Division 293 tax that has been deferred to a debt account for each defined benefit super interest.

    If the amount of deferred tax is later increased because of an amended assessment, a further determination will be made in respect of the increased amount.

    Alternatively, as outlined in section 133-25External Link of Schedule 1 to the TAA, if the amount of deferred tax is later reduced due to an amended assessment, the Commissioner must make a determination in respect of this amount. The reduction of the amount of tax deferred for later payment (the deferral reversal) must be credited to the relevant debt account.

    The Commissioner has the power to vary or revoke the determination of tax deferred to a debt account.

    Example 6.4

    Paul only has a defined benefit super interest. He has not been paid a benefit from his super interest.

    For the 2014–15 income year, the Commissioner makes an assessment of Division 293 tax.

    The Commissioner also makes a determination of tax deferred to a debt account.

    The determination specifies that all the Division 293 tax is defined benefit tax attributable to the defined benefit interest and all of the tax is deferred to a debt account.

    End of example

    6.6 Debt account

    In accordance with section 133-60External Link of Schedule 1 to the TAA, the Commissioner must keep a debt account for each defined benefit interest for which there is an amount of Division 293 tax that has been deferred to a debt account.

    The Commissioner has power to vary or revoke a determination and make appropriate adjustments to a debt account in relation to the super interest.

    Example 6.5

    Jason has a defined benefit interest. The Commissioner issues a Division 293 tax determination; however, the Commissioner is later advised that Jason has been paid an end benefit from his super interest before the date the Commissioner issued the determination.

    The Commissioner revokes Jason’s tax determination and makes the appropriate adjustments to the debt account.

    He then issues a revocation letter to Jason which advises the Division 293 due and payable liability amount.

    End of example

    The Commissioner will debit the debt account by the amount of:

    • defined benefit tax that is deferred to a debt account following a determination (Subsection 133-60(2) of Schedule 1 to the TAA)

    interest on debt account balance (Section 133-65 of Schedule 1 to the TAA).Interest is calculated on the amount by which the account is in debit at the end of the income year calculated at the long term bond rate for that financial year.

    The Commissioner will credit the debt account (if required) as a result of a:

    • determination by the Commissioner that an amount is a deferral reversal
    • remission of end-of-year interest (EOYI)

    voluntary payment made by the person to reduce the amount of the debt.The Commissioner may remit part or all of the EOYI debited to the debt account when satisfied that, because special circumstances exist, it would be fair and reasonable to do so.

    As outlined in section 133-75 of Schedule 1 to the TAA, from 1 July 2014, the Commissioner must notify the super provider of the debt account kept for their member.

    Commissioner’s discretions to remit end of year interest

    There are two separate subsections of schedule 1 to the TAA which set out when the Commissioner can remit end-of-year interest (EOYI):

    Subsection 133-65(2) of Schedule 1 to the TAA states that the Commissioner may remit the whole or any part of an amount of interest debited, or to be debited if the debt account is credited because of a deferral reversal, or because a determination of debt deferred to a debt account is varied or revoked and he is satisfied that it would be fair and reasonable to do so.

    Subsection 133-65(3) of Schedule 1 to the TAA states that the Commissioner may remit part or all of the EOYI debited to the debt account when satisfied that, because special circumstances exist, it would be fair and reasonable to do so.

    Persons can request a remission of all or part of the interest debited to the deferred debt account. The request should be in writing, describing the facts and special circumstances relevant to their situation.

    Example 6.6 Remission of interest

    Paul receives a determination for defined benefit tax deferred to a debt account on 29 June.

    The Commissioner debits a debt account for Paul for the amount of the assessed Division 293 tax that has been deferred.

    Generally, interest would be debited to the debt account on 30 June. However, it may not be fair and reasonable for the Commissioner to do so because Paul did not have adequate time to make a voluntary payment, should he have wanted to, before the interest is debited on 30 June.

    The Commissioner might choose to remit the interest on the deferred amount that was debited on 29 June.

    End of example

    6.7 Debt account discharge liability

    In accordance with section 133-105External Link of Schedule 1 to the TAA, a person has a debt account discharge liability and is liable to pay it when an end benefit has become payable. When this occurs, the Commissioner must give a notice of the amount of debt account discharge liability for that defined benefit interest.

    The end benefit generally becomes payable when the super provider receives a request for payment of a benefit and the benefit is legally permitted to be paid – for example, when a person meets a condition of release, such as preservation age.

    Where a person dies, the liability for the debt account discharge liability is taken to arise just before the person’s death. This means the person is liable for the debt account discharge liability at the time of death, and that the debt is liable to be paid by the person’s legal personal representative or the deceased estate.

    In accordance with section 133-120External Link of Schedule 1 to the TAA, a person’s debt account discharge liability for a super interest is the lesser of the:

    • amount the debt account is in debit when the debt account discharge liability arises, which will be the earlier of when the benefit became payable or a notice under section 133-125 of Schedule 1 to the TAA is made, or the
    • person’s end benefit cap for that super interest specified in a notice given to the Commissioner by the super fund.

    As outlined in section 133-110External Link of Schedule 1 to the TAA, the debt account discharge liability is due and payable at the end of 21 days after the day on which the end benefit for the super interest is paid.

    If the liability remains unpaid after this time, then GIC (general interest charge) will start to accrue.

    End benefit

    An end benefit is defined in section 133-130External Link of Schedule 1 to the TAA, which provides that a super benefit is the end benefit for a super interest if it is the first super benefit to become payable from the interest, but does not include:

    • rollovers to successor funds in the case of fund mergers
    • severe financial hardship payments

    a benefit released under compassionate grounds. The Taxation Administration Act 1953 (Meaning of End Benefit) Instrument 2013 excludes family law superannuation payments from being an end benefit .

    End benefit cap

    As the actual value of benefits received from a defined benefit interest can only be known with certainty when the benefit is paid, the annual assessment for Division 293 tax will be based on the defined benefit contributions which are determined with regard to the level of estimated final benefits.

    The actual benefit received may be less or more than the level of estimated benefits on which the assessed Division 293 tax was based.

    In order to ensure amounts of Division 293 tax is not imposed on estimated employer contributions which are ultimately not payable, the debt account discharge liability is limited under section 133-120 of Schedule 1 to the TAA.

    A person’s debt account discharge liability is the lesser of either:

    • the amount by which their debt account is in debit, or
    • 15% of the employer-financed component of that part of the value of the super interest that accrued after 1 July 2012 (the end benefit cap).

    The end benefit cap can only be calculated by the fund, and is not for the ATO to work out.

    A separate end benefit cap applies to each defined benefit interest held by a person for which there is a debit balance for a debt account maintained by the Commissioner.

    The end benefit cap is worked out by an actuary for the super provider. As outlined in section 133-140External Link of Schedule 1 to the TAA, the provider must advise the Commissioner of this end benefit cap on the approved form within 14 days after the earlier of the:

    • member advising the fund they want to take a benefit, or
    • ATO asking the fund to supply it, or
    • benefit became payable.

    The person must also notify the Commissioner of their intention to take a benefit within 21 days of them making such a request of their super provider on the approved form, End benefit notice - Superannuation provider Division 293 tax.

    Notification in the approved form

    Section 133-135External Link of Schedule 1 to the TAA, provides that when a person requests a payment of an end benefit from their defined benefit interest for which the Commissioner keeps a debt account, they must notify the Commissioner in the approved form within 21 days of making the request for the payment.

    The super provider is also required to notify the Commissioner, using the approved form, if they receive such a request from a person to pay the benefit to the person, or if the benefit becomes payable without receiving such a request – for example, in the case of a member’s death.

    The notice must be given in the approved form within 14 days of either the person’s request for the super benefit, or the end benefit becoming payable, whichever is earlier. It must also set out the person’s end benefit cap and expected payment date.

    The approved form allows the Commissioner to specify additional information that must be given by super providers to the Commissioner when they notify the Commissioner of a person’s end benefit cap.

    Division 286 in Schedule 1 to the TAA imposes an administrative penalty for failing to give returns, statements, notices or other documents to the Commissioner on time or in the approved form.

    The penalty is equal to one penalty unit (currently $180) for each period of 28 days for which the document is overdue, up to a maximum of five penalty units ($850).

    The Commissioner:

    • will determine if the end benefit cap as advised by the super provider is lower than the debt account balance before a notice of the debt account discharge liability is issued
    • must provide a notice to the person specifying the amount of their debt account discharge liability which is due and payable within 21 days after the day on which the end benefit is paid (section 133-125External Link of Schedule 1 to the TAA).

    As outlined in section 135-5External Link of Schedule 1 to the TAA, after giving the notice, the Commissioner must, as soon as practicable, give a release authority to the person to enable them to release an amount from their super interest equal to the debt account discharge liability.

    Example 6.7 End benefit cap

    John has a defined benefit interest for which the Commissioner keeps a debt account. John resigns in the 2015–16 income year and requests his entire super benefit from the fund.

    This benefit is the end benefit because it is the first payment of a benefit from his interest. He notifies the Commissioner that he has requested payment of his benefit from his defined benefit interest.

    The payment of the benefit triggers the debt account discharge liability becoming due and payable. His debt account for the defined benefit interest maintained by the Commissioner has a debit balance of $10,000 at the date his end benefit is paid.

    However, he receives a significantly lower resignation benefit from his defined benefit interest compared to the normal retirement benefit.

    The Commissioner requests the trustee of John’s defined benefit interest to report the amount of his end benefit cap, based on the resignation benefit he actually received. The trustee works out the end benefit cap as 15% of the amount of the employer-financed component of the resignation benefit that accrued since 1 July 2012.

    The trustee advises the Commissioner that John’s end benefit cap is $6,000.

    The Commissioner issues a notice to John for his debt account discharge liability of $6,000, which is due and payable within 21 days of receiving the end benefit.

    End of example

    Tax-related liability

    The debt account discharge liability is, like assessed Division 293 tax, a tax-related liability for the purposes of the general tax administration by the Commissioner.

    The end benefit cap can only be calculated by the fund, and is not for the ATO to work out.

    An objection can be made concerning the notice of the debt account discharge liability under Part IVC of the TAA. However, this objection may not relate to the amount of the liability except in relation to the application of the end benefit cap.

    A person is entitled to object to assessments and determinations made by the Commissioner that result in assessed Division 293 tax and tax being deferred, and ultimately forming part of the debt account discharge liability.

    They are also entitled to have the amount of the defined benefit contributions and the end benefit cap reviewed by the Superannuation Complaints Tribunal.

    Exercise 12

    Work it out

    Select all that apply:

    Which of the following situations will the Commissioner credit a person’s debt account?

    (a) Voluntary payment made by the person to reduce the debt.

    (b) Application of Division 293 penalties.

    (c) Remission of interest.

    (d) General interest charge (GIC) being applied.

    (e) A determination by the Commissioner that an amount is a deferral reversal.

    Answer 12

    Exercise 13

    Work it out

    Select the correct response.

    What is the end benefit cap of an employer-financed component of the value of the super interest accrued after 1 July 2012?

    a) 5%.

    b) 10%.

    c) 15%.

    d) 20%.

    Answer 13

    6.8 Objection

    A person who is dissatisfied with an assessment of Division 293 tax may lodge an objection to the assessment (or amended assessment), consistent with Part IVC of the TAA.

    An objection may also be lodged if an assessment of Division 293 tax is made but the determination of a defined benefit tax is not deferred to a debt account.

      Last modified: 15 May 2015QC 43294