Division 293 was introduced as an initiative to even out the concessional tax treatment that higher income earners enjoy on some superannuation contributions. This results from super contributions made before tax being taxed at 15% within a fund, and the higher relative difference in marginal rates for high-income earners compared to the average.
“If you are a high income earner, your marginal tax rate is higher than an average income earner,” the ATO says. “When you make concessional contributions to your fund, you receive a larger tax concession. Division 293 imposes an additional tax of 15% to bring the concession back to an amount in line with the average.”
And a client who is not usually considered to be a high-income earner may still be subject to a Div 293 notice. An assessment for Div 293 can come about because of one-off events, such as if a client received an eligible termination payment, makes a significant capital gain, or experiences a significant increase in income from any other unforeseen development.
So if you have clients at or near the income threshold of $250,000, it may pay to have relevant information handy. Division 293 tax is payable on the excess over the threshold, or on the super contributions, whichever is less.
When Div 293 (“Sustaining the superannuation contribution concession”) was introduced in the 2013-14 year, the threshold at which it applied was set at $300,000 annual income for each individual. However from 1 July 2017 this threshold reduced (in contrast to many other income thresholds and limits), and is now set at $250,000.
The ATO uses information from a taxpayer’s income tax return, and contributions reported by their super fund, to work out the Div 293 tax owed. As income levels can move year to year, there is potentially an annual possibility of Div 293 tax being imposed.
If your client is assessed as having a Div 293 liability, the ATO generally requests payment be made in 21 days. The tax is a personal tax rather than a tax deducted from super contributions by a fund. However, individuals may elect to release funds from super to pay the tax, however it is important to indicate to SMSF clients that this is not possible without a release authority from the ATO (see more details here).
To explain Div 293, the ATO uses a worked example.
“In the 2017–18 financial year Mark earns $320,000 and his employer contributes $20,000 to his super fund. Mark’s fund pays tax of $3,000 on his contribution (15% × $20,000).
“If Mark’s employer had not contributed to super, Mark would have earned $340,000 and the additional $20,000 would have been taxed at his marginal rate of 49%. Mark would have paid $9,800 tax on the additional $20,000.
“The tax concession Mark would receive on his contributions is $6,800.
“By paying Division 293 tax of $3,000 (15% × $20,000) Mark still receives a concession but it is reduced.
“The total amount of tax paid on the contribution is $6,000 (30% × $20,000, made up of 15% taxed in the fund and 15% Division 293 tax). The tax concession is now $3,800.”
When the ATO works out a taxpayer’s concessional contributions to super for Div 293, it does not include any amounts that are above the excess contributions cap as these are taxed at the marginal rate, so the taxpayer will not be getting any concessional tax treatment.
Unlike excess contributions, there is no discretion for the ATO to reallocate contributions to another income year in the calculation of Div 293 tax. Therefore if a taxpayer asks for a reallocation to avoid being taxed, they will remain concessional and need to be included back into calculations for Div 293.