In January of this year, the Australian Taxation Office has just issued the first round of Division 293 Tax Assessments for the financial year ending 30th June 2018. Being a firm that specialises in medical accounting for doctors, the Division 293 Tax feels like a tax on doctors. With the reduction in the Division 293 Tax threshold to $250,000 this year, the tax now captures and applies to more high income individual clients than ever before.
What is a Division 293 Tax
The Division 293 Tax was first announced in the 2012-13 budget and applied from 1st July 2012 to individual tax payers whose combined income and superannuation contributions were greater than $300,000. From the 1st July 2017, the threshold has been reduced to $250,000.
The Division 293 Tax was introduced to effectively balance up the tax concessions received by high income earners and align them more closely with the tax concessions of an average income earner. When high income earners make concessional superannuation contributions that are taxed at 15% going into their fund, they receive a larger tax concession due to their high marginal tax rate. The Division 293 Tax imposes an additional tax of 15% to bring the tax concession back in line with the average.
HOW IS THE DIVISION 293 TAX CALCULATED
The Division 293 tax is calculated as 15% of your total taxable concessional superannuation contributions made in the financial year up to a limit of $25,000 being the concessional contributions cap. The maximum Division 293 Tax that you will pay is $3,750.00 per year.
An important part of the calculation is your income for Division 293 Tax purposes. This is adjusted to take into account things like rental property losses and reportable fringe benefits. This may catch some individuals being unaware of their liability for the tax.
WHICH OPTION TO PAY IT IS BEST
The Division 293 Tax can be paid either with your own money or you may elect to release it from any of your existing superannuation accounts by completing a Division 293 election form online through myGov or downloading the form from the ATO website.
There is no clear reason to pay the tax from either pocket. The tax is not tax deductible and does not give you a financial tax benefit of paying it from your own funds. If you have the funds readily available and are not saving the funds for another purpose, then paying the tax with your own money is the better option. Leave your superannuation balance in tact as it is much harder to get enough superannuation into your fund for retirement given the current superannuation contribution limits.
If you do decide and elect to pay the tax from your superannuation fund, then beware that there is a time limit to make the election within.
CAN THE DIVISION 293 TAX BE AVOIDED
Short answer is no. This is a tax that can not be reduced or avoided through careful tax planning. Negative geared investments such as property or shares are added back on to your income for Division 293 Tax purposes so too are reportable fringe benefits amounts.
Why bother contributing to super when it is taxed so much? I hear you say. The truth is that you are still better off tax wise even paying the additional 15% tax. Contributing into Superannuation is still one of the best tax planning strategies you could implement.
Our team of medical accounting specialists at Sandercoe Accounting are passionate about keeping up with the latest trends and news in the accounting industry, and what it means for our clientele of medical professionals. Call us today to book an appointment!