Division 293 tax is an additional tax on super contributions for higher-income earners. For first-time recipients of a Div. 293 notice from the ATO, it can come as a surprise.
Super contributions such as employer contributions and salary sacrifice are taxed within your super fund at 15%. Introduced in July 2012, Div. 293 tax is an additional 15% tax for individuals with income greater than $250,000 a year. The tax is payable in addition to the standard 15% contributions tax and rather than being paid automatically by your super fund, most people learn of their Div 293 tax liability after receiving a bill from the ATO.
If your income is less than $250,000 a year, but after adding your before-tax super contributions, the total is more than $250,000, the 30% tax rate will apply to the part of your before-tax contributions that are over the $250,000 total.
Example 1 – Accumulation members with a salary under $250k:
- Tom has an income of $243,000 and low tax contributions of $25,000. The sum of these two amounts is $268,000. He exceeded the $250,000 threshold by $18,000. This means the Division 293 tax will be applied to $18,000, as it is lower than his low tax contributions of $25,000. He will pay Division 293 tax of 15% x $18,000 = $2,700.
Example 2 – Accumulation members with salary over $250k
- Jane has an income of $300,000 and has low tax contributions of $27,500. She is above the $250,000 threshold. This means Division 293 tax will be applied to all her low tax contributions i.e. 15% x $27,500 = $4,125.
Example 3 – Defined Benefit members:
- Mary is a defined benefit member. Her income is $245,000. She makes voluntary salary sacrifice contributions of $15,000 to an accumulation account. Mary’s notional taxed contributions for her defined benefit are $10,000. Mary’s low tax contributions are $25,000 ($10,000 + $15,000). Her combined income and low tax contributions is $270,000 ($245,000 +$25,000). She has exceeded the $250,000 threshold by $20,000. This means she will pay Division 293 tax of $20,000 x 15% = $3,000. In this example, the tax is apportioned between her accumulation account and defined benefit; meaning she will need to pay $2,250 attributed to her accumulation account within 21 days of the notice of assessment from the ATO and the remaining $750 may be deferred to a debt account.
What is ‘Adjusted Taxable Income’?
The ‘income’ that is used to calculate the Division 293 tax excludes reportable superannuation contributions (that are instead included in the low tax contributions).
Adjusted Taxable Income includes the following amounts, if applicable:
- taxable income (assessable income less deductions)
- reportable fringe benefits
- net financial investment loss
- net rental property loss
- the net amount on which family trust distribution tax has been paid.
- the taxed element of a superannuation lump sum benefit (other than a Death benefit) up to the low-rate cap amount (relevant only to those aged between 55 and 59)
What are Low Tax Contributions
If you are an accumulation member, low tax contributions are generally the concessional contributions made in a financial year, excluding any excess concessional contributions. For most people, this will be employer contributions, salary sacrifice contributions and any deductible personal contributions. However, it may include additional amounts, for example, if your employer pays superannuation insurance premiums or expenses on your behalf.
If you are a defined benefit member, your low tax contributions will be the total of any concessional contributions (by your employer or as salary sacrifice) to an accumulation account plus your defined benefit contributions, calculated by a formula specified by the government, less any excess concessional contributions. Your defined benefit contributions are your ‘notional taxed contributions’. This is the same formula that is used to determine your concessional contributions for the excess contributions tax. Your defined benefit contributions to calculate your low tax contributions are equal to your ‘notional taxed contributions’, but without any cap applying. For example, if your defined benefit notional taxed contributions calculated without the concessional contribution cap applying are $40,000, and your concessional contribution limit is $27,500 and a cap applies to you, then your defined benefit concessional contributions are $27,500 but your defined benefit low tax contributions are $40,000.
How do I pay the tax?
You can pay the tax from your own (non-super) money.
Alternatively, you can provide a release authority that enables you to have an amount released from your super account to pay all or some of the tax liability. This needs to be provided within 120 days, otherwise, your super fund will not be obliged to make the payment. The tax is due within 21 days after the issue of your notice of assessment, after that the liability is subject to the ATO general interest charge. You can provide the release authority via my.gov.au by navigating to ATO>Super>Manage>Division 293 election.
For defined benefit members, the tax liability is generally deferred, and interest accrues annually. The tax will be payable only when a benefit is paid in relation to your defined benefit membership.
If you are a temporary resident in Australia, you are entitled to a refund of any Division 293 tax paid if you receive a Departing Australia Super Payment to which withholding tax applies. The amount of the refund will be the sum of all payments made towards any Division 293 tax assessments you made while a temporary resident in Australia. You will need to apply to the ATO using the approved form for a refund.