Division 293 tax on certain concessional contributions

Certain concessional contributions of a taxpayer whose income is in excess of the Division 293 threshold for the year (see table below) are taxed at 30%. This rate of tax includes the normal contributions tax of 15% paid by the receiving fund on concessional contributions plus an additional tax of 15% known as Division 293 tax.

Division 293 tax was introduced from 1 July 2012 to limit the tax concessions provided t high income earners and, ultimately, to align their tax concessions more closely with the tax concessions received by average income earners.

The ATO makes an assessment of Division 293 tax based on the individual taxpayer’s income tax return and the contributions information provided by their superannuation fund annually in either their SMSF annual return and/or member account transaction service (MATS) if they are a member of an APRA fund. This information includes:

• employer contributed amounts
• other family and friend contributions
• assessable foreign fund amounts
• assessable amounts transferred from reserves, and
• notional employer contributions, known as defined benefit contributions, when the fund is a defined benefit fund

Division 293 tax is levied on an individual and is based on their ‘taxable contributions’ (see below). A superannuation fund is therefore not liable to pay Division 293 tax. It is the individual who is liable for this tax. Taxpayers have an option of withdrawing an amount equal to the assessed Division 293 tax from their superannuation interests, except when their superannuation interest(s) are defined benefit interest(s). If the individual is a member of a defined benefit fund, payment of Division 293 tax is deferred until a benefit is paid from the defined benefit superannuation interest.

Income for Division 293 purposes
The definition of income for Division 293 purposes is similar to the concept of income for surcharge purposes used to determine whether an individual is liable to pay Medicare levy surcharge with the exception of reportable superannuation contributions.

The individual’s income tax return is used to determine their income for Medicare surcharge purposes, which includes:

• taxable income (assessable income less deductions)
• total reportable fringe benefits amounts
• total reportable superannuation contributions
• net financial investment loss
• net rental property loss
• the net amount on which family trust distribution tax has been paid, and
• less superannuation lump sum taxed elements with a zero tax rate (due to the low rate cap)

When determining the income for Division 293 tax purposes, the total reportable superannuation contributions are subtracted from the income for Medicare surcharge purposes to prevent double counting as they are already included in the low taxed contributions.

For individuals who are members of a defined benefit fund, Division 293 tax may be calculated on notional contributions.

An individual who exceeds the Division 293 threshold in a year, will have to pay Division 293 tax on their taxable contributions. An individual’s taxable contributions are the lower of either:

• the amount of low tax contributions (as explained below)
• the excess amount above the Division 293 threshold

Low tax contributions are generally concessional contributions made in a financial year to a complying superannuation fund in respect of the member and included in the assessable income of the superannuation fund (eg, SG contributions, salary sacrificed amounts, personal contributions for which a tax deduction is claimed) less any excess concessional contributions for the year. Note excess concessional contributions are not included in the low tax contribution amount for Division 293 tax purposes as they are already included in the taxpayer’s taxable income and taxed at their marginal tax rate (with a 15% tax offset)

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