• 4.2 State high level office holders

    Under Subdivision 293-E, this modification applies to a person for an income year if they:

    • have a super interest in a constitutionally protected fund in the corresponding year, and
    • are declared by the regulation to be a State higher level office holder.

    Special rules – Low-tax contributions

    The amount of low-tax contributions are calculated as:

    • low-tax contributed amounts (that do not relate to a defined benefit interest)
    • subtract any excess concessional contributions
    • add defined benefit contributions
    • subtract contributions in respect of CPFs that are not made as part of a salary package arrangement.

    Constitutional issues

    Constitutionally protected State higher level office holders do not pay Division 293 tax in respect of low-tax contributions for CPFs – unless the contributions are made as part of a salary package arrangement.

    The exclusion of some low-tax contributions for CPFs applies to the class of people to be declared by the regulations. Because the High Court decisions have not provided a comprehensive list of which people are State higher level office holders, and it is subject to future court decisions, this approach provides flexibility and ensures any changes that may arise in the future can be readily addressed in the regulations.

    Salary package arrangement

    Contributions to CPFs are only included in low-tax contributed amounts (under the general rules in section 293-30External Link) and defined benefit contributions (under the special rules in section 293-105External Link) if they are made as part of a salary package arrangement for the purpose of calculating low-tax contributions. This ensures that amounts of low-tax contributions in respect of CPFs for such people only include contributions made as part of a salary package arrangement (and not other contributions to CPFs) – so making only such salary packaged contributions potentially subject to Division 293 tax.

    However, for the purposes of determining whether such members of CPFs have taxable contributions for an income year – whether the $300,000 threshold is met – all low-tax contributed amounts and all defined benefit contributions are included in the calculation of low-tax contributions (section 293-150External Link).

    For the purpose of these rules, a salary packaged contribution is a contribution in respect of a person to whom these provisions apply that is made because they agreed with an entity (or its associate) for the contribution to be made in return for a reduction in their remuneration (subsection 293-160(1)External Link).

    The reduction in the remuneration needs to be made by the employer reducing one of a number of types of payments covered by the pay as you go withholding regime in Part 2-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA).

    The relevant types of payments include:

    • payments to employees
    • payments to company directors
    • payments to office holders
    • voluntary agreements to withhold
    • payments under labour hire agreement, or specified by regulation.

    4.3 Commonwealth justices and judges

    Under Subdivision 293-F, this modification applies to a person where they are a justice of the High Court, or a justice or judge of a court created by the Parliament, at any time on or after the start of the person’s 2012–13 income year.

    Example 4.1

    For the 2013–14 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 $40,000
    • defined benefit contributions of $30,000.

    Stuart's taxable contributions are the lesser of either the excess above the threshold or low-tax contributions:

    • Excess above the threshold is income plus all contributions minus threshold ($300,000 + $90,000 ($20,000+$40,000+$30,000) - $300,000).
      The excess is $90,000.
    • Low-tax contributions are 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 $40,000. This means Stuart's low-tax contributions are $40,000.

    The lesser amount is the low-tax contributions, which means that Stuart's taxable contribution amount is $40,000. The Division 293 tax payable on these taxable contributions is $40,000 x 15% = $6,000.

    End of example

    Special rules – Low-tax contributions

    As outlined in section 293-195, where a person is a Commonwealth justice or judge, the amount of low-tax contributions are calculated as:

    • low-tax contributed amounts (that do not relate to a defined benefit interest)
    • subtract any excess concessional contributions, and
    • add defined benefit contributions (except defined benefit contributions for a defined benefit interest in a super fund established under the Judges’ Pensions Act 1968).

    The Constitution requires justices and judges of the High Court, and of other courts created by the Parliament, to receive remuneration as determined by the Parliament. This prevents the remuneration being reduced during their period in office.

    Constitutional restrictions

    The imposition of Division 293 tax may constitute a reduction of judicial remuneration where certain defined benefit pension entitlements form part of their remuneration.

    To address these limitations, defined benefit contributions for a defined benefit interest in a super fund established under the Judges’ Pensions Act 1968 are not included in low-tax contributions and are not subject to Division 293 tax.

    This is achieved by treating the amount of such contributions as nil.

    These special rules only apply to justices and judges that have a defined benefit interest in a super fund established under the Judges’ Pensions Act 1968.

    However, no such constitutional limitations apply to other contributions made to benefit Commonwealth justices and judges. As a result, contributions made by other employers after a justice or a judge leaves office are potentially included in low-tax contributions.

    Effect of modification on $300,000 threshold

    To reflect the actual position of Commonwealth justices and judges in determining the Division 293 tax on these contributions, all low-tax contributions, including these protected amounts, are included when determining if low-tax contributions exceed the $300,000 threshold at which Division 293 tax applies.

    While no Division 293 tax will be assessed on defined benefit contributions for a super interest in a super fund established under the Judges' Pensions Act 1968 , these contributions affect whether Division 293 tax may be payable on other low-tax contributions.

    Example 4.2

    For the 2013–14 income year, Matthew, a High Court justice, has the following:

    • income for Division 293 purposes of $325,000
    • defined benefit contributions made to his Judges Pension Scheme of $35,000
    • low-tax contributed amounts made to his self-managed super fund of $20,000.

    Matthew's taxable contributions are the lesser of:

    • excess above the threshold, which is Income plus all contributions, minus threshold ($325,000 + $55,000 ($35,000+$20,000) - $300,000). So, the excess is $80,000.
    • low-tax contributions are calculated by excluding the exempt contributions which are the contributions made to his Judges Pension Scheme ($35,000). This leaves only the low-tax contributed amounts made to his SMSF of $20,000.

    This means Matthew’s low-tax contributions are $20,000.

    The Division 293 tax payable on these taxable contributions is $20,000 x 15% = $3,000.

    End of example
    Exercise 4

    Work it out

    Select all that apply:

    When a person only has accumulation interests the amount of low-tax contributions for an income year are calculated as:

    low-tax contributed amounts for the income year

    minus

    excess concessional contributions for the income year (if any).

    Which of the following would modify this calculation?

    (a) Defined benefit interests.

    (b) Person has reached preservation age.

    (c) Non-concessional contributions.

    (d) Commonwealth justices and judges.

    (e) Constitutionally protected State higher level office holders.

    Answer 4

    Exercise 5

    Work it out

    Is the following statement true or false?

    The special rules only apply to justices and judges that have an accumulation interest in a super fund established under the Judges Pension Act 1968.

    Answer 5

    4.4 Temporary residents who depart Australia

    Under Subdivision 293-G, this modification applies to temporary residents who depart Australia. Generally, if a person has received a departing Australia superannuation payment (DASP), they are entitled to a refund of any Division 293 tax they have paid.

    The following elements must be satisfied in order 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.

    In accordance with subsection 293-235(3)External Link, 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.

    Amount of refund

    Subsection 293-235(1) provides that the amount of the refund is the sum of the following payments that a person has made:

    • assessed Division 293 tax
    • a voluntary payment to reduce the amount by which a debt account is in debit
    • the debt account discharge liability.

    The amount of the refund is reduced by any other refund that they have claimed in a previous application and that has been granted.

    Offsetting rules

    The amount of the refund is also subject to the normal offsetting rules. Should they have other debts with the ATO, then the amount of the refund could be reduced in order to pay those debts.

    As outlined in section 293-240, entitlement to a temporary resident refund will stop all Division 293 tax liabilities if the Commissioner decides to release them from either:

    • an existing or a future liability to pay Division 293 tax, or
    • a debt account discharge liability where they would have been entitled to a refund if they had made a payment.

    How to apply for the refund

    To apply for a refund, the former temporary resident must apply to the Commissioner in the approved form.

    In addition to completing the approved form, they must provide evidence that they have received a DASP. Acceptable evidence includes the payment summary provided by the super fund when making the payment or other evidence that clearly demonstrates the payment had been made and the reason for the payment.

    Get it done

    To claim this payment, complete and lodge the form Division 293 Tax - refund or debt release application for former temporary residents (NAT 74727).

    Release of current and future liability

    Under section 293-240External Link, a departing temporary resident who receives a DASP who has not paid any Division 293 tax but has a liability (including defined benefit tax deferred to a debt account) may also be released from all current and future Division 293 tax liabilities where they would have been entitled to a refund had they made a payment.

    A person in this situation is not required to apply to the Commissioner; however, they can lodge the form Division 293 Tax – refund or debt release application for former temporary residents to start the release process, if it has not been started by the ATO.

      Last modified: 15 May 2015QC 43294