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This measure was originally announced in the 2012 federal Budget and was referred to as the ‘Reduction in tax concessions for very high income earners’. Now known as the ‘Sustaining the superannuation contribution concession measure’, it amends the ITAA 1997 to introduce the new Division 293 tax.
Since 1 July 2012, your members will generally be liable to pay Div 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% to 15%.
Around 1% of people who contribute to super will be affected by this measure.
Division 293 tax will be charged at 15% of an individual’s taxable concessional contributions above the $300,000 threshold.
Individuals will be liable for Division 293 tax if they have taxable contributions for an income year and their income for surcharge purposes plus their low-tax contributions are greater than $300,000. The taxable contributions will be the lesser of the low-tax contributions and the amount above the $300,000.
Division 293 tax uses an adjusted income based on income for Medicare levy surcharge purposes This information is collected from the individual’s tax return.
Reportable superannuation contributions are disregarded from the surcharge calculation because these contributions are included in another part of the calculation.
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How Division 293 tax is calculated
Division 293 tax uses contribution information reported on an individual’s member contributions statement (MCS) to determine the total super contributions. The contributions that are counted for Division 293 tax purposes generally include:
These contributions are concessionally taxed within the super fund. For this measure, they are known as low-tax contributed amounts.
The low-tax contributed amounts are not the same as low-tax contributions. In order to calculate which contributions are the low-tax contributions, we disregard any excess concessional contributions because for the 2012–13 financial year contributions that are subject to excess contributions tax are taxed an extra 30% (excluding Medicare levy) on top of the 15% tax paid by the super fund. For the 2013–14 and following financial years, excess concessional contributions are taxed at a person’s marginal tax rate and liable for an additional charge on top of the 15% tax paid by the super fund – to apply the additional 15% of Division 293 tax would be considered excessive.
As a result, low-tax contributions are equal to the low-tax contributed amounts (that is, super contributions concessionally taxed in the fund) minus excess concessional contributions.
For super interests that are identified as defined benefit interests, there is a modification to the way low-tax contributions are calculated.
The total taxable super contributions (concessionally taxed in the fund) are collated, disregarding the notional taxed contributions reported on the MCS.
The next step is to disregard any concessional contributions subject to excess concessional contributions tax.
The final step is to add in the defined benefit contributions, the calculation method for which is prescribed in regulations. For the 2012–13 year, the calculation method for defined benefit contributions is the same as notional taxed contributions, which is already calculated and reported to us for ECT purposes.
The calculation method for 2013–14 year requires the engagement of an actuary.
SMSFs will not need to calculate the defined benefit contribution amount because these funds are no longer accepting these types of contributions.
Individuals who are classified as state higher level office holders who have certain super contributions made on their behalf into a constitutionally protected fund (CPF) are exempt from having Division 293 tax applied to those super contributions.
Under the regulations a state higher level officer holder is:
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.
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.
For these state higher level office holders, all contributions made to a CPF, other than salary packaged contributions, are excluded from being taxed. Salary packaged contributions are contributions made because the individual agreed with their employer for the contribution to be made and, in return, withholding payments are reduced.
While certain contributions are excluded from being taxed, they are to be included in the calculation for determining whether the $300,000 threshold has been exceeded. This means that when working out the taxable contributions for the income year, it is the lesser of:
For the 2012-13 income year, Stuart, a state higher level office holder, has income for Division 293 purposes of $300,000 and concessional contributions as follows:
Stuart's taxable contributions are the lesser of:
The lesser amount is the low-tax contributions, which means that Stuart's taxable contribution amount is $20,000.
To identify the contributions that are exempt from Division 293 tax for constitutionally protected state higher level office holders, we need to do the following.
Individuals who are justices of the High Court, or justices or judges of a court created by parliament, cannot have their remuneration reduced during their period in office. As a result, super contributions to a super fund established under the Judges’ Pensions Act 1968 are exempt from having Division 293 tax applied to those contributions.
While contributions made to one of these judges’ funds are excluded from the low-tax contribution amount when determining the taxable contributions, they are to be included when determining whether the $300,000 threshold has been exceeded.
This means that when working out the taxable contributions for the income year, it is the lesser of:
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