Division 293 Tax Guidance

The ATO has recently redesigned the Division 293 notice to provide information clearly and concisely. This includes providing the full assessment calculation to make it easier for people to understand how their tax has been calculated. This will also make it easier to identify any erroneous assessments due to incorrect reporting of information

Julie Steed, Senior Technical Services Manager of Australian Executor Trustees Part of the IOOF group, has kindly provided a refresher on the Division 293 tax and a review of the newly redesigned ATO notice that can be seen here: Div 293 notice of assessment

Division 293 tax

From 1 July 2017, the income threshold above which individuals pay an additional 15% tax on certain superannuation contributions reduced from $300,000 to $250,000. In December 2018 the ATO began issuing over 90,000 Division 293 notices for the 2017/18 income year. It is estimated that approximately 125,000 individuals will receive a Division 293 notice in the 2025FY.

Importantly, there are no strategies that can be used to reduce an individual’s liability for Division 293 tax. However, understanding the options that are available and how the Division 293 notice process works will assist individuals who receive a notice.

Overview

People with Division 293 income greater than $250,000 will pay 15 per cent additional tax on certain superannuation contributions. The tax is a personal tax rather than a tax deducted from super contributions by a fund. However, individuals may elect to release funds from super to pay the tax (see the Choices section below).

Division 293 income

Division 293 income includes:

• taxable income
• reportable fringe benefits
• total net investment losses.

Ad-hoc income

Individuals who are not generally high income earners may still be liable for Division 293 tax if they receive certain one-off payments during a year. Such payments include eligible termination payments, the taxable component of a superannuation death benefit and capital gains.

However, the taxable component of a super lump sum benefit (other than a death benefit) is not included where:

• it is received by individuals from preservation age to age 59
• it is up to the current low rate cap of $205,000.

Division 293 contributions

Division 293 contributions include:

• employer contributions
• personal deductible contributions
• contributions for a defined benefit interest (valued by an actuary)
• employer contributions (including salary sacrifice) to a constitutionally protected fund.

The additional tax does not apply to:

• excess concessional contributions
• non-concessional contributions
• contributions to certain Government funds for senior personnel, unless they are salary sacrifice contributions
• contributions for certain Judges to defined benefit funds.

Calculation of Division 293 tax

Division 293 tax is 15% of the lesser of:

• the amount of the Division 293 contributions
• the amount of Division 293 income and Division 293 contributions above the $250,000 threshold.

Case study

Ryan has the following Division 293 details:

Division 293 tax is payable on $10,000, being the lesser of:

• $20,000
• $260,000 – $250,000 = $10,000

The Division 293 tax amount is 15% x $10,000 = $1,500

Division 293 notice

The ATO issues an Additional tax on concessional contributions (Division 293) notice to individuals which specifies the additional amount of tax that is payable and the due date for payment.

The ATO has recently redesigned the Division 293 notice to provide information clearly and concisely. This includes providing the full assessment calculation to make it easier for people to understand how their tax has been calculated. This will also make it easier to identify any erroneous assessments due to incorrect reporting of information.

The notice will also explain how to avoid interest charges, view statements of accounts online and the process for disagreeing with the assessment.

Choices

When an individual receives a Division 293 assessment they can choose to pay the tax from their personal resources. Alternatively, they can elect to have the amount released from their super fund to pay the tax. The time frame for making the election is 60 days. However, this may be a greater time frame than the date upon which payment of the tax is due.

The ATO encourages people to make their election via their MyGov account. Alternatively, a Division 293 tax due and payable form can be completed.

The election can be made to release the tax amount from any super fund (other than some defined benefit funds). There is no requirement for the release to be made from the fund that received the contributions.

Release authority

If an election to have the amount released from super is made, the ATO will send the super fund a release authority and the fund will make the payment to the ATO. Funds are required to make the payment within 10 business days from the date the release authority is issued by the ATO.

Importantly a fund must not release an amount until they have received the ATO release authority. This requirement is sometimes misunderstood by SMSF trustees.

Conclusion

Understanding the choices available and the process involved in paying Division 293 tax can assist in ensuring that any tax payable is completed in a manner most appropriate to an individual’s circumstances.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why not contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Tel: 02 9899 3693, Mobile: 0413 936 299

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This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.