AdviserVoiceSuper – Caps, tax and contributions - AdviserVoice https://www.adviservoice.com.au/2022/02/cpd-super-caps-tax-and-contributions/ Financial planner information & financial planner education/CPD - AdviserVoice Sun, 12 Jul 2026 21:20:32 +0000 en-US hourly 1 https://wordpress.org/?v=7.0.1 Super – Caps, tax and contributions https://www.adviservoice.com.au/2022/02/cpd-super-caps-tax-and-contributions/ https://www.adviservoice.com.au/2022/02/cpd-super-caps-tax-and-contributions/#respond Wed, 16 Feb 2022 21:00:28 +0000 https://www.adviservoice.com.au/?p=79959

While the super pool keeps growing, the rules around contributing to and accessing those retirement savings continue to evolve.

By the end of the last financial year, Australia’s total superannuation assets had amassed $3.3 trillion, 14.7% higher than the previous year. While the super pool keeps growing, the rules around contributing to and accessing those retirement savings continue to evolve. This article, sponsored by Russell Investments, provides clarity about the current superannuation landscape.

The Ancient Greek philosopher Heraclitus pronounced the ‘only certainty in life is change’, a declaration that ably summarises Australia’s superannuation system. There have been changes to contributions, the way super is taxed, how it can be accessed, preservation ages…and more recently, dealing with stapling, league tables and diminished funds due to Covid drawdowns. With an election looming, as Heraclitus proclaimed, change is almost a given.

However, the importance of superannuation as a retirement savings vehicle remains undiminished. There are tax advantages to savings accumulated in the super environment, and a range of strategies that can help your clients both amass retirement savings and make the most of tax efficient savings.

Contributions and caps

There are limits that restrict the amount your clients can contribute to superannuation each year before incurring additional tax; these limits apply to both concessional and non-concessional contributions.

Concessional contributions are those made before tax and include super guarantee (SG) contributions made by employers, personal contributions for which your client can claim a tax deduction and salary sacrifice contributions.

Concessional contributions are taxed at a lower ‘concessional’ rate of 15%. If your client’s employer subsidises any administration costs or pays insurance premiums on their behalf, these amounts also count towards the concessional contribution limit.

Non-concessional contributions are after tax contributions. To make a non-concessional contributions, your client must be:

  • under age 67, or
  • if aged 67-74, they need to meet a ‘work test’ of 40 hours gainful employment within a 30-day period in the financial year in which they contribute, or the previous financial year.

Clients over the age of 75 may not make contributions to their super.

Importantly, if your client has $1.7 million or more in the super system on 30 June in the previous financial year, they can no longer make non-concessional contributions.

What happens if my client exceeds their limit?

If your client’s contributions pushes them over their limit, they’ll be liable to pay more tax. However, only the amount above the relevant limit is subject to this additional tax. For example, if your client contributed $5,000 over their limit, extra tax would be charged only on this $5,000.

Any concessional contributions that exceed the limit will be taxed at the client’s marginal tax rate (including the Medicare Levy), plus an Excess Concessional Contributions (ECC) charge.

Excess concessional contributions will also count towards the client’s non-concessional contribution limit. Any non-concessional contributions that exceed the limit will be taxed at 47% (including the Medicare Levy).

Importantly, for those clients contributing to more than one super account, the contribution limit is a total combined limit.

Limits for the 2021/22 financial year

Concessional contributions are limited to $27,500 for the year.

It’s important to note that clients are able to carry forward any unused concessional contributions cap amounts from 1 July 2018. That way, if they have not used all of their concessional cap in a particular financial year, they’re able to carry forward their unused concessional cap amounts to future years.

This is only available where the client’s total superannuation balance less is than $500,000 on 30 June in the previous year. Unused amounts are available for a maximum of five years.

Non-concessional contributions are limited to $110,000 for the year.

Depending on your client’s total superannuation balance, those aged under 65 may be able to bring forward two years of contributions, providing a total non-concessional cap of $330,000 for the three years. Where a bring-forward has been triggered, the two future years’ entitlement are not indexed.

Since 1 July 2017, the bring-forward amount and period has been dependent on the client’s total superannuation balance and the financial year in which the bring-forward was triggered.

Any contributions made in excess of this limit will be taxed at 47% (including the Medicare Levy). If a client is over their limit, they can choose to have the excess non-concessional contributions (along with associated earnings) returned. These can be invested outside of the super environment.

Importantly, those clients with $1.7 million or more in the super system on 30 June in the previous financial year will not be able to make non-concessional contributions.

Salary sacrifice v after tax contributions

The benefit of a contribution via salary sacrifice is twofold. Firstly, it can help grow your client’s super savings to meet their retirement goals. Secondly, it can reduce their taxable income. Only 15% tax is deducted from a salary sacrifice contribution, compared to the client’s marginal tax rate, which will usually be much higher. The tax rate on the investment growth inside super is also a maximum of 15%, generally much lower than the tax on investments outside superannuation.

Figure one: How salary sacrifice can save tax

Sam’s salary is $85,000. If he sacrifices $5,000 to super, he will pay $750 in contributions tax instead of $1,725 in income tax, giving him $975 more to invest.

In the case of after tax contributions, if a client’s total assessable income is lower than the relevant income threshold, making after-tax contributions may qualify them for a co-contribution from the government of up to $500.

No contributions tax is deducted from after-tax contributions, provided the contribution limits are not exceeded. For those with a low income or who receive franked dividends from share investments, their income tax rate may be lower than the 15% contributions tax deducted for salary sacrifice. In such cases, the client could pay less tax by making after tax contributions rather than through salary sacrifice.

Downsizer contribution

Another way to make a non-concessional contribution to superannuation is to make use of the government’s downsizer contribution. Clients aged 65 years plus who choose to downsize and who meet the eligibility requirements can make a downsizer contribution into their superannuation fund of up to $300,000 (per person) from the proceeds of selling their home. From 1 July 2022, the downsizer contribution will be available to Australians aged 60 or over, as long as they meet all other eligibility requirements, including:

  • the amount contributed is from the proceeds of the sale of a home
  • the home was owned by your client and/or their spouse for 10 years or more prior to the sale
  • the home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • the client has provided their super fund with the Downsizer Contribution into Super form either before or at the time of making a downsizer contribution
  • the downsizer contribution is to be made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • the client has not previously made a downsizer contribution to their super from the sale of another home.[1]

While the value of your client’s main residence is excluded from the assets test, once sold with some of the proceeds added to their superannuation account, that increased value will then be assessed and may impact their age pension entitlements.

A downsizer contribution does not count towards any of the contribution caps. It can be made even if the client has total super savings greater than $1.7 million, or if they don’t meet work test requirements.

In the scenario where a home was only owned by one spouse and was sold, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other eligibility requirements.

In the event the home was sold for an amount less than the total downsizer contribution ($300,000 or $600,000), the maximum downsizer contribution that can be made relates to the person’s share of the home. For example, if a home owned by a couple sold for $550,000, the total downsizer contribution they could make between them is $550,000.

Should the ATO become aware that a contribution does not meet the downsizer contribution eligibility requirements, the client’s super fund will need to assess whether the contribution could have been made as a personal contribution under the contributions acceptance rules.

If the contribution can be accepted, the amount will count towards your client’s non-concessional contributions cap. If the contribution can’t be accepted, the contribution amount will be returned to your client by their super fund. Penalties may be applied by the ATO if it identifies a downsizer contribution as not eligible and your client had incorrectly declared their eligibility to make such a contribution.

Spousal contributions

If one partner of a client couple is a low-income earner, works part-time, or is unemployed, the higher income earner could add to their super, which could be to the benefit of both parties.

By making a spousal contribution, the higher income earlier may be eligible for a tax offset. To be entitled to this, the couple must meet the following eligibility requirements:

  • the higher income earner must make a non-concessional contribution to their spouse’s super
  • the couple must be married or in a de facto relationship
  • both parties must be Australian residents
  • the receiving party must either be under age 67, or, if aged between 67 and 74, must meet work test requirements
  • the receiving spouse’s income must be $37,000 or less to qualify for the full tax offset or less than $40,000 to qualify for a partial tax offset.

Under the current 2021/22 tax rules, your client may be able to claim an 18% tax offset on super contributions up to $3,000 made on behalf of the non-working or low-income-earning partner. While your client can contribute more than $3,000, they won’t receive the spouse contribution tax offset on anything above $3,000 (source: ATO).

Transfer balance caps

The transfer balance cap (TBC) limits the total amount of superannuation that can be transferred into a tax-free super pension account. First introduced on 1 July 2016 at $1.6 million, from 1 July 2021 the transfer balance cap increased to $1.7 million.

For those clients with a TBC before 1 July 2021, the ATO will calculate their TBC, which will be between $1.6 million and $1.7 million.

The TBC:

  • includes the total amount transferred from super to one or more pension accounts and includes any death benefits taken as a pension
  • does not include transition to retirement accounts
  • does not apply to investment earnings made in the retirement phase.. so if your client’s pension account balance grows over $1.7 million, no action is required.

Clients can leave any amount over $1.7 million in their superannuation account.

If a client transfers more than $1.7 million into their retirement phase account, they will be liable to pay 15% tax – or in the event they have previously gone over their TBC, 30% tax. This is calculated from the day they exceed the TBC.

Super and tax

Super contributions made before tax are taxed within your client’s super fund at a concessional rate of 15% (up to the concessional contribution limit). An additional 15% tax – known as Division 293 tax – was introduced in 2012. It reduces the tax concessions on superannuation contributions for individuals with income greater than $250,000[2] a year. The Division 293 tax is payable in addition to the standard 15% contributions tax. Concessional contributions in excess of the cap will be taxed at the client’s marginal tax rate, therefore Division 293 tax does not apply.

This means if your client is a high income earner with an income in excess of $250,000 a year, the total tax on their before-tax contributions below the concessional contribution limit is 30%.

If the client’s income is less than $250,000 a year, by including their before tax contributions (that are below the concessional contribution limit) the total is more than $250,000, the 30% tax rate will apply to those before-tax contributions over $250,000 (but below their concessional contribution limit).

For example, if their income is $230,000 and the before-tax contributions are $25,000, the client only pays the 30% tax rate on $5,000.

Income for surcharge purposes (also known as adjusted taxable income)

The ‘income’ that is used to calculate the Division 293 tax is similar to the income used for determining whether the client is liable to pay the Medicare levy surcharge. It excludes reportable superannuation contributions (that are instead included in the low tax contributions).

This income includes the following amounts, if applicable:

  • taxable income (assessable income less deductions)
  • reportable fringe benefits
  • net financial investment loss
  • net rental property loss
  • the net amount on which family trust distribution tax has been paid.

It excludes the taxed element of a superannuation lump sum benefit (other than a death benefit) up to the low rate cap amount, relevant only to those aged between 55 and 59.

Low tax contributions

If your client is an accumulation member, low tax contributions are generally the concessional contributions made in a financial year, excluding any excess concessional contributions. For most individuals, this will be employer contributions, salary sacrifice contributions and any deductible personal contributions.

For those clients in a defined benefit scheme, their low tax contributions will be the total of any concessional contributions (by the employer or as salary sacrifice) to an accumulation account plus the defined benefit contributions, calculated in accordance with a formula specified by the government, less any excess concessional contributions.

In the case of defined benefits, those contributions are regarded as the ‘notional taxed contributions’. This is the same formula that is used to determine concessional contributions for the purposes of the excess contributions tax. For some defined benefit members ‘notional taxed contributions’ are capped at the concessional contribution limits shown in figure two.

The defined benefit contributions for the purpose of calculating the low tax contributions are equal to the client’s ‘notional taxed contributions’, but without any cap applying. For example, if the defined benefit notional taxed contributions calculated without the concessional contribution cap applying are $40,000, and the concessional contribution limit is $27,500 and a cap applies, then the defined benefit concessional contributions are $27,500, but the defined benefit low tax contributions are $40,000.

Does Division 293 tax apply?

If the total of your client’s income for surcharge purposes and low tax contributions is above $250,000, the Division 293 tax will apply to the lesser of the following two amounts:

  • the amount by which the client’s total income for surcharge purposes and low tax contributions exceeds $250,000; or
  • the total of their low tax contributions.

The additional 15% tax is applied to the lesser of these two amounts.

Case study one: Accumulation member

Tom has an income of $243,000 and low tax contributions of $25,000.

The sum of these two amounts is $268,000. He exceeded the $250,000 threshold by $18,000. This means the Division 293 tax will be applied to $18,000, as it is lower than his low tax contributions of $25,000. He will pay Division 293 tax of 15% x $18,000 = $2,700.

Case study two – Defined benefits member

Mary is a defined benefit member. Her income is $245,000. She makes voluntary salary sacrifice contributions of $15,000 to an accumulation account. Mary’s notional taxed contributions for her defined benefit are $10,000. Mary’s low tax contributions are $25,000 ($10,000 + $15,000).

Her combined income and low tax contributions is $270,000 ($245,000 +$25,000). She has exceeded the $250,000 threshold by $20,000. This means she will pay Division 293 tax of $20,000 x 15% = $3,000.

In this example, the tax is apportioned between her accumulation account and defined benefit; meaning she will need to pay $2,250 attributed to her accumulation account within 21 days of the notice of assessment from the ATO and the remaining $750 may be deferred to a debt account.

With a federal election in the next couple of months, there’s every chance of further change to the super system. One thing that will remain unchanged is the importance of superannuation as a retirement savings vehicle, and the importance of your role to help clients navigate its complexities.

 

———

[1] Source: Australian Tax Office
[2] From 1 July 2017, the Australian Government lowered the Division 293 income threshold from $300,000 to $250,000.
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While the super pool keeps growing, the rules around contributing to and accessing those retirement savings continue to evolve.

By the end of the last financial year, Australia’s total superannuation assets had amassed $3.3 trillion, 14.7% higher than the previous year. While the super pool keeps growing, the rules around contributing to and accessing those retirement savings continue to evolve. This article, sponsored by Russell Investments, provides clarity about the current superannuation landscape.

The Ancient Greek philosopher Heraclitus pronounced the ‘only certainty in life is change’, a declaration that ably summarises Australia’s superannuation system. There have been changes to contributions, the way super is taxed, how it can be accessed, preservation ages…and more recently, dealing with stapling, league tables and diminished funds due to Covid drawdowns. With an election looming, as Heraclitus proclaimed, change is almost a given.

However, the importance of superannuation as a retirement savings vehicle remains undiminished. There are tax advantages to savings accumulated in the super environment, and a range of strategies that can help your clients both amass retirement savings and make the most of tax efficient savings.

Contributions and caps

There are limits that restrict the amount your clients can contribute to superannuation each year before incurring additional tax; these limits apply to both concessional and non-concessional contributions.

Concessional contributions are those made before tax and include super guarantee (SG) contributions made by employers, personal contributions for which your client can claim a tax deduction and salary sacrifice contributions.

Concessional contributions are taxed at a lower ‘concessional’ rate of 15%. If your client’s employer subsidises any administration costs or pays insurance premiums on their behalf, these amounts also count towards the concessional contribution limit.

Non-concessional contributions are after tax contributions. To make a non-concessional contributions, your client must be:

  • under age 67, or
  • if aged 67-74, they need to meet a ‘work test’ of 40 hours gainful employment within a 30-day period in the financial year in which they contribute, or the previous financial year.

Clients over the age of 75 may not make contributions to their super.

Importantly, if your client has $1.7 million or more in the super system on 30 June in the previous financial year, they can no longer make non-concessional contributions.

What happens if my client exceeds their limit?

If your client’s contributions pushes them over their limit, they’ll be liable to pay more tax. However, only the amount above the relevant limit is subject to this additional tax. For example, if your client contributed $5,000 over their limit, extra tax would be charged only on this $5,000.

Any concessional contributions that exceed the limit will be taxed at the client’s marginal tax rate (including the Medicare Levy), plus an Excess Concessional Contributions (ECC) charge.

Excess concessional contributions will also count towards the client’s non-concessional contribution limit. Any non-concessional contributions that exceed the limit will be taxed at 47% (including the Medicare Levy).

Importantly, for those clients contributing to more than one super account, the contribution limit is a total combined limit.

Limits for the 2021/22 financial year

Concessional contributions are limited to $27,500 for the year.

It’s important to note that clients are able to carry forward any unused concessional contributions cap amounts from 1 July 2018. That way, if they have not used all of their concessional cap in a particular financial year, they’re able to carry forward their unused concessional cap amounts to future years.

This is only available where the client’s total superannuation balance less is than $500,000 on 30 June in the previous year. Unused amounts are available for a maximum of five years.

Non-concessional contributions are limited to $110,000 for the year.

Depending on your client’s total superannuation balance, those aged under 65 may be able to bring forward two years of contributions, providing a total non-concessional cap of $330,000 for the three years. Where a bring-forward has been triggered, the two future years’ entitlement are not indexed.

Since 1 July 2017, the bring-forward amount and period has been dependent on the client’s total superannuation balance and the financial year in which the bring-forward was triggered.

Any contributions made in excess of this limit will be taxed at 47% (including the Medicare Levy). If a client is over their limit, they can choose to have the excess non-concessional contributions (along with associated earnings) returned. These can be invested outside of the super environment.

Importantly, those clients with $1.7 million or more in the super system on 30 June in the previous financial year will not be able to make non-concessional contributions.

Salary sacrifice v after tax contributions

The benefit of a contribution via salary sacrifice is twofold. Firstly, it can help grow your client’s super savings to meet their retirement goals. Secondly, it can reduce their taxable income. Only 15% tax is deducted from a salary sacrifice contribution, compared to the client’s marginal tax rate, which will usually be much higher. The tax rate on the investment growth inside super is also a maximum of 15%, generally much lower than the tax on investments outside superannuation.

Figure one: How salary sacrifice can save tax

Sam’s salary is $85,000. If he sacrifices $5,000 to super, he will pay $750 in contributions tax instead of $1,725 in income tax, giving him $975 more to invest.

In the case of after tax contributions, if a client’s total assessable income is lower than the relevant income threshold, making after-tax contributions may qualify them for a co-contribution from the government of up to $500.

No contributions tax is deducted from after-tax contributions, provided the contribution limits are not exceeded. For those with a low income or who receive franked dividends from share investments, their income tax rate may be lower than the 15% contributions tax deducted for salary sacrifice. In such cases, the client could pay less tax by making after tax contributions rather than through salary sacrifice.

Downsizer contribution

Another way to make a non-concessional contribution to superannuation is to make use of the government’s downsizer contribution. Clients aged 65 years plus who choose to downsize and who meet the eligibility requirements can make a downsizer contribution into their superannuation fund of up to $300,000 (per person) from the proceeds of selling their home. From 1 July 2022, the downsizer contribution will be available to Australians aged 60 or over, as long as they meet all other eligibility requirements, including:

  • the amount contributed is from the proceeds of the sale of a home
  • the home was owned by your client and/or their spouse for 10 years or more prior to the sale
  • the home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • the client has provided their super fund with the Downsizer Contribution into Super form either before or at the time of making a downsizer contribution
  • the downsizer contribution is to be made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • the client has not previously made a downsizer contribution to their super from the sale of another home.[1]

While the value of your client’s main residence is excluded from the assets test, once sold with some of the proceeds added to their superannuation account, that increased value will then be assessed and may impact their age pension entitlements.

A downsizer contribution does not count towards any of the contribution caps. It can be made even if the client has total super savings greater than $1.7 million, or if they don’t meet work test requirements.

In the scenario where a home was only owned by one spouse and was sold, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other eligibility requirements.

In the event the home was sold for an amount less than the total downsizer contribution ($300,000 or $600,000), the maximum downsizer contribution that can be made relates to the person’s share of the home. For example, if a home owned by a couple sold for $550,000, the total downsizer contribution they could make between them is $550,000.

Should the ATO become aware that a contribution does not meet the downsizer contribution eligibility requirements, the client’s super fund will need to assess whether the contribution could have been made as a personal contribution under the contributions acceptance rules.

If the contribution can be accepted, the amount will count towards your client’s non-concessional contributions cap. If the contribution can’t be accepted, the contribution amount will be returned to your client by their super fund. Penalties may be applied by the ATO if it identifies a downsizer contribution as not eligible and your client had incorrectly declared their eligibility to make such a contribution.

Spousal contributions

If one partner of a client couple is a low-income earner, works part-time, or is unemployed, the higher income earner could add to their super, which could be to the benefit of both parties.

By making a spousal contribution, the higher income earlier may be eligible for a tax offset. To be entitled to this, the couple must meet the following eligibility requirements:

  • the higher income earner must make a non-concessional contribution to their spouse’s super
  • the couple must be married or in a de facto relationship
  • both parties must be Australian residents
  • the receiving party must either be under age 67, or, if aged between 67 and 74, must meet work test requirements
  • the receiving spouse’s income must be $37,000 or less to qualify for the full tax offset or less than $40,000 to qualify for a partial tax offset.

Under the current 2021/22 tax rules, your client may be able to claim an 18% tax offset on super contributions up to $3,000 made on behalf of the non-working or low-income-earning partner. While your client can contribute more than $3,000, they won’t receive the spouse contribution tax offset on anything above $3,000 (source: ATO).

Transfer balance caps

The transfer balance cap (TBC) limits the total amount of superannuation that can be transferred into a tax-free super pension account. First introduced on 1 July 2016 at $1.6 million, from 1 July 2021 the transfer balance cap increased to $1.7 million.

For those clients with a TBC before 1 July 2021, the ATO will calculate their TBC, which will be between $1.6 million and $1.7 million.

The TBC:

  • includes the total amount transferred from super to one or more pension accounts and includes any death benefits taken as a pension
  • does not include transition to retirement accounts
  • does not apply to investment earnings made in the retirement phase.. so if your client’s pension account balance grows over $1.7 million, no action is required.

Clients can leave any amount over $1.7 million in their superannuation account.

If a client transfers more than $1.7 million into their retirement phase account, they will be liable to pay 15% tax – or in the event they have previously gone over their TBC, 30% tax. This is calculated from the day they exceed the TBC.

Super and tax

Super contributions made before tax are taxed within your client’s super fund at a concessional rate of 15% (up to the concessional contribution limit). An additional 15% tax – known as Division 293 tax – was introduced in 2012. It reduces the tax concessions on superannuation contributions for individuals with income greater than $250,000[2] a year. The Division 293 tax is payable in addition to the standard 15% contributions tax. Concessional contributions in excess of the cap will be taxed at the client’s marginal tax rate, therefore Division 293 tax does not apply.

This means if your client is a high income earner with an income in excess of $250,000 a year, the total tax on their before-tax contributions below the concessional contribution limit is 30%.

If the client’s income is less than $250,000 a year, by including their before tax contributions (that are below the concessional contribution limit) the total is more than $250,000, the 30% tax rate will apply to those before-tax contributions over $250,000 (but below their concessional contribution limit).

For example, if their income is $230,000 and the before-tax contributions are $25,000, the client only pays the 30% tax rate on $5,000.

Income for surcharge purposes (also known as adjusted taxable income)

The ‘income’ that is used to calculate the Division 293 tax is similar to the income used for determining whether the client is liable to pay the Medicare levy surcharge. It excludes reportable superannuation contributions (that are instead included in the low tax contributions).

This income includes the following amounts, if applicable:

  • taxable income (assessable income less deductions)
  • reportable fringe benefits
  • net financial investment loss
  • net rental property loss
  • the net amount on which family trust distribution tax has been paid.

It excludes the taxed element of a superannuation lump sum benefit (other than a death benefit) up to the low rate cap amount, relevant only to those aged between 55 and 59.

Low tax contributions

If your client is an accumulation member, low tax contributions are generally the concessional contributions made in a financial year, excluding any excess concessional contributions. For most individuals, this will be employer contributions, salary sacrifice contributions and any deductible personal contributions.

For those clients in a defined benefit scheme, their low tax contributions will be the total of any concessional contributions (by the employer or as salary sacrifice) to an accumulation account plus the defined benefit contributions, calculated in accordance with a formula specified by the government, less any excess concessional contributions.

In the case of defined benefits, those contributions are regarded as the ‘notional taxed contributions’. This is the same formula that is used to determine concessional contributions for the purposes of the excess contributions tax. For some defined benefit members ‘notional taxed contributions’ are capped at the concessional contribution limits shown in figure two.

The defined benefit contributions for the purpose of calculating the low tax contributions are equal to the client’s ‘notional taxed contributions’, but without any cap applying. For example, if the defined benefit notional taxed contributions calculated without the concessional contribution cap applying are $40,000, and the concessional contribution limit is $27,500 and a cap applies, then the defined benefit concessional contributions are $27,500, but the defined benefit low tax contributions are $40,000.

Does Division 293 tax apply?

If the total of your client’s income for surcharge purposes and low tax contributions is above $250,000, the Division 293 tax will apply to the lesser of the following two amounts:

  • the amount by which the client’s total income for surcharge purposes and low tax contributions exceeds $250,000; or
  • the total of their low tax contributions.

The additional 15% tax is applied to the lesser of these two amounts.

Case study one: Accumulation member

Tom has an income of $243,000 and low tax contributions of $25,000.

The sum of these two amounts is $268,000. He exceeded the $250,000 threshold by $18,000. This means the Division 293 tax will be applied to $18,000, as it is lower than his low tax contributions of $25,000. He will pay Division 293 tax of 15% x $18,000 = $2,700.

Case study two – Defined benefits member

Mary is a defined benefit member. Her income is $245,000. She makes voluntary salary sacrifice contributions of $15,000 to an accumulation account. Mary’s notional taxed contributions for her defined benefit are $10,000. Mary’s low tax contributions are $25,000 ($10,000 + $15,000).

Her combined income and low tax contributions is $270,000 ($245,000 +$25,000). She has exceeded the $250,000 threshold by $20,000. This means she will pay Division 293 tax of $20,000 x 15% = $3,000.

In this example, the tax is apportioned between her accumulation account and defined benefit; meaning she will need to pay $2,250 attributed to her accumulation account within 21 days of the notice of assessment from the ATO and the remaining $750 may be deferred to a debt account.

With a federal election in the next couple of months, there’s every chance of further change to the super system. One thing that will remain unchanged is the importance of superannuation as a retirement savings vehicle, and the importance of your role to help clients navigate its complexities.

 

———

[1] Source: Australian Tax Office
[2] From 1 July 2017, the Australian Government lowered the Division 293 income threshold from $300,000 to $250,000.

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