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.
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