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  • Division 293 tax – information for super funds

    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.

    What is Division 293 tax?

    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.

    Income for Division 293 purposes

    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.

    Attention

    Reportable superannuation contributions are disregarded from the surcharge calculation because these contributions are included in another part of the calculation.

    End of attention

    Find out more

    How Division 293 tax is calculated 

    End of find out more

    Low-tax contributions

    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:

    • employer-contributed amounts
    • other family and friend contributions
    • assessable foreign fund amounts
    • assessable amounts transferred from reserves
    • personal contributions for which a deduction has been claimed
    • defined benefit contributions (funded and unfunded).

    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.

    Modifications for defined benefit interests

    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.

    Attention

    SMSFs will not need to calculate the defined benefit contribution amount because these funds are no longer accepting these types of contributions.

    End of attention

    Modifications for certain state higher level office holders

    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.

    Who is a state higher level officer holder?

    Under the regulations a state higher 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.

    What is a 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.

    How does the exemption work?

    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:

    • the excess above the threshold (including all low tax contributed amounts and all defined benefit contributions) for the income year; and
    • the individual’s low tax contributions for the financial year (worked out having regard for the excluded contributions).

    Example

    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:

    • employer contributed amounts (super guarantee payments) of $20,000
    • salary packaged contributions of $20,000
    • defined benefit contributions of $30,000

    Stuart's taxable contributions are the lesser of:

    • excess above the threshold which is Income plus All Contributions minus Threshold ($300,000 + $70,000 ($20,000+$20,000+$30,000) - $300,000). The excess is $70,000
    • low-tax contributions calculated by excluding the exempt contributions which are the employer contributed amounts (super guarantee payments) and the defined benefit contributions. This leaves only the salary packaged contributions of $20,000. This means Stuart's low-tax contributions are $20,000.

    The lesser amount is the low-tax contributions, which means that Stuart's taxable contribution amount is $20,000.

    End of example
    Identifying exempt contributions

    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.

    • Identify the constitutionally protected funds. This is reported to us on the super funds’ member contribution statement.
    • Identify the state higher level office holders. This is done in consultation with the employers of the state higher level office holders. State higher level office holders are generally employees of government. Therefore, we will work with state government departments to identify the individuals eligible for the exemption.
    • Identify the salary packaged contributions. This is done by reviewing the ‘reportable employer superannuation contributions’ on an individual’s income tax return and cross-checking the date the contribution was made with the superannuation fund.

    Modifications for Commonwealth judges

    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:

    • the excess above the threshold (including all low tax contributed amounts and all defined benefit contributions) for the income year; and
    • your low tax contributions for the financial year (worked out having regard for the excluded contributions).
    • Last modified: 23 Apr 2015QC 36567