An extra 44,000 taxpayers have been hit with the additional 15% Division 293 tax for the first time on their superannuation contributions for 2017–2018.
Individuals with income and super contributions above $250,000 are subject to an additional 15% Div 293 tax on their "low tax contributions" (ie concessional contributions). Concessional contributions include all employer contributions, such as the 9.5% super guarantee (SG) and salary sacrifice contributions, and personal contributions for which a deduction has been claimed.
Where the Div 293 tax applies, the effective contributions tax is doubled from 15% to 30% for certain concessional contributions (up to the concessional cap).
The maximum Div 293 tax payable is $3,750 ($25,000 x 15%). Despite this extra 15% tax, there is still an effective tax concession of 15% (ie the top marginal rate – excluding the Medicare levy – less 30%) on concessional contributions.
Higher numbers of taxpayers are facing the additional tax because the Div 293 income threshold was reduced to $250,000 for 2017–2018 (it was previously $300,000). This income threshold has a broad tax definition and includes concessional super contributions (up to $25,000). This means that the Div 293 tax can be triggered for taxpayers with incomes below $250,000 (although the additional tax only applies to amounts above the $250,000 threshold).
Taxpayers have the option of paying the Div 293 tax liability using their own money, or by electing to release an amount from an existing super balance (which means completing a Div 293 election form). When someone makes such an election, the ATO will direct their nominated super fund to release the amount to the ATO. Although the election can be made within 60 days using the ATO approved form, taxpayers still need to pay the additional tax by the due date to avoid interest charges.
Negative gearing and many salary packaging arrangements generally will not assist in bringing your income under the $250,000 threshold. However, the following may be useful to know:
- If you expect to exceed the high-income threshold, you may wish to consider scaling back your super contributions to only the mandatory 9.5% super guarantee contributions.
- Reconsider making additional contributions for a financial year if you're also anticipating a large one-off amount of taxable income during an income year. For example, an employment termination payment or a large net capital gain will flow through into your taxable income and may push you above the high-income threshold, triggering the Div 293 tax for that income year.
- Labor has proposed, if elected in the imminent Federal election, to further reduce the Div 293 income threshold to $200,000 and catch more taxpayers in the Div 293 net.