What is Division 293 tax?
Division 293 tax is imposed on concessional contributions of high income earners whose income and relevant concessionally taxed contributions (referred to as low tax contributions) exceeds $250,000 for the 2017/18 financial year onwards. For the financial years 2012/13 to 2016/17 inclusive, the threshold was $300,000. If you are in this category, you are liable for this tax.
What is my income for Division 293 tax?
This is similar to the calculation of income for Medicare levy surcharge purposes and is calculated from your income tax return. Note that the taxable component of a Super Lump Sum in some circumstances is regarded as assessable income (please see the ATO website for more details).
What are low-tax contributions?
Low-tax contributions are super contributions concessionally taxed in the fund and include any superannuation guarantee charge payments plus any defined benefit contributions (DBC) calculated on your behalf. DBC are notional contributions determined by an actuarial formula. Your productivity contributions (also known as Notional Taxed Contributions – NTC) are used in the DBC calculation but are otherwise ignored when aggregating your low-tax contributions. Salary sacrifice contributions made to and reported by another fund also make up your low-tax contribution total for Division 293 purposes.
All superannuation funds report details of all real contributions they have received plus any notional contributions calculated to the ATO on an annual basis.
How is the Division 293 tax calculated?
The ATO will calculate your Division 293 tax in the following way:
Determine your income:
Determine your low-tax contributions:
Add together your income and your low tax contributions.
(Step 1 + Step 2)
If the combined figure is greater than $250,000, you have taxable contributions. These are the lesser of:
Tax of 15% is applied to these taxable contributions
The following examples are relevant for the 2017/18 year onwards
Example 1 – defined benefit interest
Peter earns $240,000 and his employer contributes $4,800 in productivity contributions to CSS. The productivity contributions of $4,800 are also Peter’s notional taxed contributions for Division 293 tax purposes.
Peter’s Defined Benefit Contributions are calculated to be $32,544 for Division 293 tax purposes using an actuarial formula.
Peter’s total low tax contributions are the sum of his defined benefit contributions up to his concessional contribution cap.
Division 293 tax will be charged at 15% of an individual’s taxable concessional contributions above the $250,000 threshold. Peter’s income and low tax contributions are $265,000 ($240,000 + $25,000) which exceeds the $250,000 threshold.
Division 293 tax is calculated as the lesser of the low tax contributions or the amount in excess of $250,000. As the amount in excess of $250,000 (being $15,000) is less than his low tax contributions, an additional 15% tax is payable on the $15,000 (ie $2,250).
As the debt is in respect of the defined benefit interest, it is deferred to a debt account maintained by the ATO and is payable at the time your defined benefit first becomes payable. It can also be paid to the ATO by you at any time or from your accumulation interests, but not from the defined benefit.
Example 2 – accumulation interest
Peter earns $250,000 and has $25,000 salary sacrifice contributions paid to another fund as his only concessional contributions in the 2017/18 year. Peter’s income and low tax contributions are $275,000 which exceeds the $250,000 threshold.
Division 293 tax is calculated as the lesser of the low tax contributions or the amount in excess of $250,000. As the amount in excess of $250,000 (being $25,000) is the same as his low tax contributions, an additional 15% tax is payable on the $25,000 (ie $3,750).
As the debt is in respect of an accumulation interest, it is due and payable to the ATO within 21 days of the notice of assessment. It can also be paid to the ATO by you at any time or from your accumulation interests, but not from the defined benefit.
Example 3 – defined benefit exit with ETP lump sum
Peter is under 60 years in age and receives an assessable lump sum when he exits CSS in the 2017/18 year, resulting in his total income being $400,000. Peter’s salary for superannuation is $105,739 and he has Defined Benefit Contributions of $14,021 for the 2017/18 year using the actuarial formula.
Division 293 tax will be charged at 15% of an individual’s taxable concessional contributions above the $250,000 threshold. Peter’s income and low tax contributions are $414,021 which exceeds the $250,000 threshold.
Division 293 tax is calculated as the lesser of the low tax contributions or the amount in excess of $250,000. As the low tax contribution amount ($14,021) is less than the amount in excess of $250,000 ($164,021), an additional 15% tax is payable on the $14,021 (ie $2,103).
After Peter submits his tax return for the 2017/18 financial year the ATO associates a debt with the defined benefit interest of $2,103. If Peter is in receipt of a CSS pension he can notify the fund to reduce his fortnightly pension and have the debt deducted from his pre-tax income. Peter also has the option of paying the debt directly to the ATO.
What kinds of Division 293 tax liability are there?
The ATO will issue a Division 293 tax assessment that may be made up of:
- a due and payable amount attributable to accumulation interests
- a deferred payment amount attributable to defined benefit interests.
When is the amount attributable to accumulation interests due?
A Division 293 tax assessment attributable to accumulation interests is required to be paid by the due date. This will usually be within 21 days after the ATO gives you a Notice of Assessment.
When is deferred liability attributable to defined benefit interests due?
Payment of Division 293 tax is deferred if the tax has been raised on a defined benefit account from which no super benefit has yet become payable. This reflects the fact that money generally cannot be released from a defined benefit account until a super benefit is paid, usually upon retirement.
If you have more than one defined benefit account, all Division 293 tax attributed to those accounts will be deferred and the tax apportioned across the accounts. A separate debt account will be created for each defined benefit account an individual holds that has Division 293 tax attributed to it.
What is a release authority?
The ATO will send you a Release Authority in conjunction with any Division 293 tax assessment they issue. Should you choose, the Release Authority enables you to instruct your superannuation fund to release monies from your superannuation accounts to pay this tax.
What happens if I have a deferred liability?
The ATO will establish a debt account for deferred Division 293 tax amounts. A separate debt account will be created for each defined benefit account you hold that has Division 293 tax attributed to it. On 30 June each year the ATO will apply interest at the 10 year Treasury bond rate to the debit balance of the debt account. You can defer payment of your deferred Division 293 tax liabilities until you claim a benefit from the super account that the debt relates to.
If you have a debt account in respect of your membership, the ATO will, in addition to notifying you of the amount, advise us that you have a debt account, but not the amount of the debt.
When do I need to pay my deferred liability?
A deferred Division 293 tax debt must be paid when a benefit becomes payable from the defined benefit it is attributed to. This is known as the end benefit. This will typically be when you claim your benefit. However, you can choose to make a voluntary payment to the ATO at any time.
Once we become aware of your benefit claim, we are required to provide the ATO with an end benefit cap calculation.
The ATO will then calculate your debt account discharge liability. This will be the lesser of the:
- balance of your debt account
- end benefit cap amount.
The due date for the debt account discharge liability is 21 days after the benefit is paid.
You must also notify the ATO that you intend to claim a benefit within 21 days of submitting a claim for your super benefit, using their form that can be obtained from their website.
What is the end benefit cap?
This is equal to 15% of the employer financed component of your benefit that has accrued since 1 July 2012 until 30 June of the financial year prior to your benefit claim.
How do I pay my Division 293 tax liability?
You can make a payment directly to the ATO at any time or you can request us to make a payment from the accumulation interest of your superannuation account. If you want us to make a payment, you must forward a signed copy of the Release Authority.
Any payments we make in relation to Division 293 tax attributable to accumulation interests or voluntary payments in relation to deferred liabilities will be deducted from your accumulation interests.
How do I pay my deferred to debt account discharge liability?
You have three options to pay your deferred debt account liability:
- You can pay the amount out of your own pocket at any time or,
- Ask us to pay it from any of your accumulation interests ( transfers in, Co-contributions, LISC or ATO Superannuation Guarantee) or,
- Ask us to make the payment at the time you claim a benefit relating to your defined benefit.
If you want us to make the payment at the time you claim your benefit, you must submit a signed copy of the Release Authority and the Division 293 tax debt repayment election form with your benefit application. You must also advise the ATO of your request within 21 days of making the request.
You should notify us at least two weeks before your intention to claim your benefit. This will enable us to provide the ATO with an end benefit cap. The ATO will use this to raise the debt account discharge liability and Release Authority. Any Division 293 tax debt repayment election form received without an accompanying Division 293 Release Authority will result in delays with the benefit payment.
Note: please Contact us to obtain the Division 293 tax debt repayment election form.
What if I disagree with my assessment?
If you disagree with the assessment, you may lodge a formal objection with the ATO.
Please visit the ATO website for details of this process.
What happens if I preserve my benefit in the Scheme?
Any deferred Division 293 tax debt remaining at 30 June each year your benefit is preserved in the scheme will be charged interest by the ATO at the 10-year Treasury bond rate.
What are my payment options?
- Payment of Division 293 tax debt account discharge liability from a lump sum benefit
- If a Division 293 tax debt account discharge liability is to be paid from your benefit and there is a lump sum only benefit payable, or if you elect to have a pension and a lump sum and would like the debt applied to your lump sum, your pre-tax lump sum is reduced by the debt account discharge liability amount as shown on your Release Authority.
- Payment of Division 293 tax debt account discharge liability from pension
- Payment of a Division 293 tax debt account discharge liability from a pension is achieved by converting the Division 293 tax debt account discharge liability amount on the Release Authority to an annual pension reduction amount, and your pension is reduced by that amount. Your annual pension reduction amount is determined by dividing the debt account discharge liability by a pension reduction factor.
Are payments made from pre-tax dollars?
As your benefit lump sum or pension benefit is reduced by the debt account discharge liability before it is paid, the amount applied to pay the liability does not form part of taxable income, and is not subject to the tax that would otherwise apply to your lump sum. In other words, the payment is made from pre-tax dollars.
What do I need to do if I receive a Division 293 tax debt assessment after my benefit is paid?
If you take all or part of your benefit as a pension and you receive a Division 293 tax debt account discharge liability from the ATO after the pension commences, you can request us to deduct the debt account discharge liability from your pension. The reduction will be based on the Division 293 tax pension reduction factor applicable to your age at the time of the reduction.
Is my future pension adjusted?
Once the pension reduction amount is subtracted from the initial amount of your pension, your remaining pension is subject to adjustment in the normal manner on the first pension payday in January and July each year, in accordance with any upward movement in the Consumer Price Index.
What happens if I die?
In the case where a member dies before they receive their benefit, any Division 293 tax debt is recovered from the deceased’s estate.
What if I’m going through a Family Law split or have Superannuation Contributions Surcharge?
Any Division 293 tax debt account discharge liability is payable after superannuation surcharge liabilities and family law splits have been actioned.
Where can I get more information?
The ATO is the primary point of contact for enquiries on the Division 293 tax and related matters. The ATO helpline is 1300 651 221. The ATO website also contains comprehensive information on the Division 293 tax.