For people who fall into the category of high-income earners, saving their money for retirement via super is a wise strategy. In addition to this, you have to pay attention to the “division 293 tax.” To know more about division 293 tax, take a look at the below sections:
What is a Division 293 Tax?
If your income plus before-tax super contribution is above $250,000 in a specific financial year, then you are answerable to division 293 tax. Division 293 tax can be charged at 15% on the amount of before-tax contributions.
Your income is excluded from your concessional contributions within the limit. However, your before-tax contributions will force you to exceed the limit. Plus, additional tax will be applied to before-tax contributions that go over the threshold.
Division 293 tax is applied because being a high-income earner, your top or marginal tax rate for income amounts above $180,000 is 45% (in 2019/2020). When you make a before-tax contribution into your super account, you pay only a 15% tax rate. It simply means you are getting a large saving amount on your bill tax as compared to an average income earner.
Detailed Calculation of Division 293
We make use of the following information to determine whether you are accountable for division 293 tax or not:
- Tax return to identify your division 293 income
- Contribution income reported by your super fund to identify division 293 super contributions
Division 293 tax assessment is issued once required information is submitted.
Division 293 Income
The calculation of the income component of division 293 depends on the same income calculation that helps to determine whether an individual needs to pay the MLS, i.e. Medicare levy surcharge, neglecting any reportable superannuation contributions that are reported on the tax return.
The factors of this income calculation are:
- Total reportable fringe benefits amounts
- Net rental property loss
- Net financial investment loss
- Taxable income
- Net amount on which family trust distribution tax paid
- Assessable first home super saver released amount
- Super lump sum taxed elements with zero tax rate
Except assessable first home saver released and super lump sum amount, rest amounts are added up to provide the income amount.
For example income component
John has reported the following amounts on his tax return:
- Taxable income of $290,000
- Sum of reportable fringe benefits of $10,000
- Net amount on which family trust distribution tax that has been paid of $15,000
It will give John an income component for the division 293 tax purposes of $315,000.
Division 293 Super Contributions
When an individual’s concessional contributions subtract any excess concessional contribution, then the result will be division 293 contributions. The before-tax contributions counted for division 293 tax purposes may include:
- Employer contributed amounts
- Assessable foreign fund amounts
- Defined benefits contributions
- Assessable amounts transferred from reserves
- Personal contribution for which you are allowed for deduction
- Other family and friend contributions
For Example excess before-tax contributions
- John has division 293 super contributed amounts of $40,000.
- John has a before-tax contribution cap of $25,000 and as a result, he has excess before-tax contributions of $40,000 – $25,000 = $15,000.
- Now, John’s division 293 super contributions are: concessional contribution ($40,000) – excess concessional contribution ($15,000) = $25,000.
Taxable Super Contributions
The sum of taxable super contribution amount can’t be considered as the same as division 293 super contributions. It is lesser of the division 293 super contributions and the amount in the excess of the limit.
For example the lesser amount
For the income year of 2017-18, John had $315,000 division 293 income and $25,000 division 293 super contributions.
The taxable contributions amount is the lesser of either:
- Division 293 super contribution amount is: $25,000 or
- The amount of income and division 293 super contributions more than the limit= $315,000 + $25,000 = $340,000 – $250,000 = $90,000.
Therefore, the result of John’s taxable contribution for the income year of 2017-18 is $25,000 because it is lesser of two amounts.
Division 293 Tax for State Higher Level Office Holders
If you fall into the category of state higher level office holder, they are exempt from having division 293 tax.
Who falls into the category of state higher level office holder?
- The government of the state
- The parliament member of the state
- The clerk of parliament house of the state
- A judge, magistrate, or justice of the court of the state
- Governor staff member of the state
- Minister staff member of the government of the state
- Government minister of the state
- The head of the public service department of a state
Constitutionally Protected Funds (CPFs)
CPFs are untaxed super funds that don’t pay income tax on earnings they get or contributions. In Australia, CPFs are operated by the state government for their employees.
Exempt Super Contributions
Mostly all contributions made to CPFs, for state higher level officeholders. And, salary packages are excluded from the division 293 super contribution amount when identifying the taxable contribution, but it is included when identifying whether the limit was exceeded.
Salary packaged contributions are made you consent with your employer for the contribution that will be made. And, in return, withholding payments are minimized.
Super Guarantee (SG) Amnesty & Division 293
Under the super guarantee amnesty, contributions are made, but will not count towards your contributions for the purpose of Division 293. Most often, these amounts will have already been excluded from your division 293.
Wrapping Up the Concept of Division 293
About five years ago, the concept of division 293 was introduced to the tax system. If you are closer to the threshold, then be aware of division 293 could be a consideration in your potential tax liabilities. Make sure to understand this concept in detail as mentioned above, to clear your all doubt about division 293 tax.
If you are unable to find what you need to do with division 293 tax, then you can get help from taxation accountants or advisers. Reliable Melbourne Accountants is an accounting firm situated in Melbourne, Australia, that can provide you help regarding this.
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