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FIND YARRA RANGES | FEBRUARY 2022
findyarraranges.com.au
High Income Earners – Beware of One-off Income Earning Events ACCOUNTANT By Warren Strybosch
sector funds are not included as low tax contributions as these amounts don’t count towards a client’s concessional cap.
If you are a high-income earner, especially someone who is now earning close to $250,000 this financial year, you need to understand how Division 293 applies so you do not get a surprise at tax time.
Payment process After a client submits their tax return and the super funds have reported all contributions for the year, the ATO will determine if a Division 293 tax liability has arisen. The client has a choice of:
Division 293 tax is the additional 15% tax on concessional contributions for high income earners. The tax applies when a client’s combined income and nonexcessive concessional contributions for the year are greater than $250,000.
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One-off events can result in clients having to pay Division 293 tax when normally their annual income is well below the $250,000 threshold.
paying the tax liability personally, or having the tax deducted from their super fund (via a release authority provided by the ATO).
To make this choice, the client can complete an election form on myGov. If this election is not made within the 60day timeframe provided, the ATO will issue a release authority directly to the super fund for payment.
Division 293 income definition
Important note:
The definition of ‘income’ used for Division 293 provisions is the total of:
It is not the responsibility of the employer or the receiving super fund to deduct this additional 15% tax on concessional contributions. The onus to meet this liability is on the client.
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taxable income (excluding any FHSSS* released amount and any assessable super lump sum benefits where the low-rate cap applies for those under 60) amounts subject to family trust distribution tax reportable fringe benefits total net investment losses low tax contributions * First Home Super Saver Scheme
What are low tax contributions? Low tax contributions generally refer to all concessional contributions made in a year less any excess concessional contributions (as the excess amount is already picked up as part of taxable income). Concessional contributions made to defined benefit schemes (both taxed and untaxed funds) and amounts allocated from reserves to the extent that they count towards the client’s concessional cap, may also be included as low tax contributions although the contributions are modified for defined benefit interests, State higher level office holders and Commonwealth justices and judges. Transfers from foreign superannuation funds that are taxed in the receiving fund and rollovers of taxable component (untaxed element) from untaxed public
Trap - beware of one-off events Income (for Division 293 purposes) can increase suddenly in a particular financial year due to a one-off event resulting in an additional 15% tax on nonexcessive concessional contributions made in that year including concessional contributions made using the carry forward of unused cap rules. Some of the common events that can arise to dramatically increase taxable
income and therefore the requirement to pay Division 293 tax include: •
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Employment termination payments and leave entitlements that are added to taxable income as a result of redundancy (ie the amount over the tax free portion). The sale of an asset resulting in a capital gain. Receiving a taxable super death benefit as a non-dependent beneficiary (eg adult child). Example: Rory is 50 years of age with a salary of $200,000 p.a. In the 2021-22 year, he plans to maximise his concessional contributions and will contribute $27,500. His father Jon has an account-based pension valued at $300,000 (all taxable component) and Rory is the sole beneficiary under a binding nomination. In January 2022, Jon dies, and Rory receives the death benefit resulting in taxable income for the year of $500,000 (noting that the maximum tax rate that will apply to the $300,000 death benefit is 15% plus Medicare). As Rory’s income exceeds $250,000 for 2021-22, he will receive (possibly unexpectedly) a Division 293 tax liability notice from the ATO for $4,125 ($27,500 x 15%).
At Find Accountant, we provide SMSF tax advice. Our senior accountant is also an award-winning financial advisor. If you require SMSF advice or are considering whether or not to wind up your SMSF, then speak to Warren Strybosch at Find Accountant Pty Ltd.
Warren Strybosch You can call them on 1300 88 38 30 or email info@findaccountant.com.au www.findaccountant.com.au
WARREN STRYBOSCH Find Group
The founder of the Find Group of companies draws on his diverse background, which ranges from teaching, to serving in the army, to taxation and accounting, to coach and help clients live their best financial lives. A multi-award winner, Warrens’s innovative approach in business means he was a champion of virtual financial advise long before the pandemic. Warren established the Find Foundation, which owns and operates acroos Victoria.
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