The normal rate at which pre-tax superannuation contributions in excess of $25,000 (Contributions) are taxed is 15% as prescribed by section 291.15 of the Income Tax Assessment Act 1997 (Cth) (ITAA).[1] However, section 293.15 of the ITAA includes an additional tax on Contributions (Division 293 Tax) that applies subject to certain criteria.[2] This article discusses the Division 293 Tax, and to whom it applies. Superannuation contributions equal to or below $25,000 are referred to as Low Tax Contributions.
What is Division 293 Tax?
Section 293.15 of the Act provides that a person is “…liable to pay Division 293 [T]ax if [they] have taxable contributions for an income year”. Section 293.20(1) of the Act defines taxable contributions as being:
“(1) …the sum of:
(a) [one’s] income for surcharge purposes for an income year (disregarding your reportable superannuation contributions); and
(b) [their] [L]ow [T]ax [C]ontributions for the corresponding financial year;
[that] exceeds $250,000…”
Additionally, section 239.1 of the ITAA defines the high income threshold as $250,000 (Threshold).
How is the Division 293 Tax applied?
Section 293.20(1) of the ITAA provides the Division 293 Tax is calculated on the lesser of a person’s taxable contributions or the Tax Contribution cap of $25,000 (Cap). Section 5 of the Superannuation (Sustaining the Superannuation Contribution concession) Imposition Act 2013 (Cth) states the amount of the Division 239 Tax is 15%. This is added to the 15% already taxed from Contributions making 30% the total percentage taxed. The following two (2) examples explain different scenarios of when the Division 239 Tax can be applied:
- if you earn $240,000 per year and contribute $25,000 to superannuation, the sum of which is $265,000, you will be in excess of the Threshold by $15,000. This $15,000 is below the Cap and therefore is the amount applied to Division 293 Tax. The $15,000 will be taxed at 30%. Therefore, $4,500 would be taxed; or
- if you earn $300,000 per year and have and contribute $50,000 to your superannuation, the sum of which is $350,000, you will be in excess of the Threshold by $100,000. This $100,000 is above the Cap which means only $25,000 (the Cap) taxed by 30%. Therefore, $7,500 would be taxed.
Takeaways
The Division 293 Tax is payable by people with income and Low Tax Contributions that exceed the Threshold. It doubles the tax on Contributions from 15% to 30% if the taxpayer earns over $250k in an income year. The amount taxable is the lesser amount of either the Cap or the amount of excess over the Threshold.
Links and further references
Related materials
Additional tax on concessional contributions (Division 293) – information for individuals
Legislation
Income Tax Assessment Act 1997 (Cth)
Superannuation (Sustaining the Superannuation Contribution concession) Imposition Act 2013 (Cth)
Taxation Administration Act 1953 (Cth)
Further information about tax obligations
If you need assistance with your company’s tax obligations, contact us for a confidential and obligation-free discussion:
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
[1] See also Income Tax Assessment Act 1997 (Cth) s 291.20.
[2] See also Income Tax Assessment Act 1997 (Cth) s 293.20.
Related insights into tax law
-
What are retained earnings?
Retained Earnings are a financial metric that offers a valuable insight into a company’s financial health, extended stability and potential for future growth. They represent the profit a company has retained overtime after accounting for all liabilities including the payment (if any) of dividends.
-
High Court asset protection 101 – house in name of spouse
The decision of the High Court of Australia in Bosanac v Commissioner of Taxation [2022] HCA 34 (Bosanac) reaffirms the viability of protecting real property assets by registering them in the name of a spouse.
-
Digital Games Tax Offset proposed by Albanese
The Albanese Labor Government has proposed a Digital Games Tax Offset (DGTO) of 30%, encouraging the growth of the digital games industry in Australia. Learn more about the DGTO and how it will create more jobs and international competitiveness.
-
R&D Tax Incentive determination on clinical trials
Find out if you are eligible for the Australian Government’s RandD Tax Incentive: companies with an aggregated turnover of
-
Present entitlement and trusts – what does it mean?
Explore the High Court’s interpretation of “present entitlement” under the Income Tax Assessment Act 1936 (Cth). Learn when a person has a vested interest in trust assets and how the trustee’s discretion affects the beneficiary’s entitlement.
-
Software royalties and income tax
Discover how the Australian Taxation Office (ATO)’s draft Taxation Ruling 2021/D4 could affect your business. Learn more about the expanded scope of what is considered a royalty for income tax purposes and the potential tax implications.
-
What is my superannuation taxed at?
This article summarises the Australian Privacy Principles (APPs) and the importance of having a data destruction policy (DDP) in place. It outlines the steps to take when destroying or deidentifying personal and sensitive information, and the consequences of not doing so.
-
What is Division 293 tax?
Learn about the Division 293 Tax, a 15% additional tax on pre-tax super contributions over $25,000 for individuals earning over $250,000. Understand the criteria, how it is applied and related tax articles.
-
Transfer duty exemption for small business restructures
The Queensland Commissioner of State Revenue has issued a public ruling outlining potential exemptions from transfer duty for eligible small business entities undergoing a restructuring. Get the full details of the ruling, its implications and eligibility requirements here.
