Super Contributions Tax

Superannuation contributions tax rules within limits provide a legal way to shield income from tax at normal rates, and build up retirement savings in the lower-taxed environment of a super fund.

budget-2016_17 In a measure announced in the 2016 Budget, the higher income amount (the threshold at which high-income earners pay Division 293 tax on their concessional taxed contribution to superannuation) has been reduced from $300,000 to $250,000 with effect from 1 July 2017.  See Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016.

The Div 293 tax threshold amount remains at $250,000 for 2018-19.

In general..

In general, tax deductible (“concessional“) superannuation contributions are taxed when received by a complying super fund at the rate of 15%.

Higher income earners are subject to an additional 15% on the over-$250,000 (over-$300,000 before 1 July 2017) slice of (income + contributions) under Division 293 which has applied since 1 July 2012.

Division 293 Notices

If your income plus low-tax super contributions add up to more than $250,000 ($300,000 before 1 July 2017), there is an extra 15% tax on the taxable contributions.

These are referred to as “Division 293” assessments. The first issue of these assessments were for the 2012-13 tax year in February 2014.

Source: ato.gov.au

Lower income earners

For lower income earners (less than $37,000 a year) from 1 July 2012 until 30 June 2017 the Low Income Superannuation Contribution (“LISC”) scheme was in place, which is a refund of the 15% contributions tax up to a maximum of $500.

The Mining Tax repeal measures which gained the approval of Federal Parliament on 2 September 2014 provide for the removal of LISC from 1 July 2017.

From 1 July 2017 the Low Income Superannuation Tax Offset commenced, which operates in similar terms to effectively refund the 15% contributions tax to a maximum of $500.

Tax-Free Contributions

Non-tax deductible contributions, (also referred to as undeducted or non-concessional contributions) are not taxed at all, and ultimately can be withdrawn tax free. But of course they must be paid for out of the member’s after-tax earnings, so the government coffers don’t miss out in that sense.

There are times when it’s convenient or tax-preferable to make super contributions without claiming a tax deduction. This is to take advantage of a complying super fund’s investment income being taxed at the concessional rate of 15%, as well as (normally) being entitled to dividend franking credits. This can result in the overall tax rate on the investments earnings being lower than it would otherwise have been if the investment income had been earned directly in the hands of an individual taxpayer paying tax at the tax scale marginal rates.

Contributions Tax Is Paid By The Super Fund (not you)

Tax on superannuation contributions is paid by the super fund.

Thus in cash flow terms the tax normally comes from the contribution itself or the fund, and won’t directly impact your personal income tax assessment or cash flow.

Contributions form part of a complying super fund’s taxable income , generally taxed at 15%, but with effective tax rates of 47% or even higher if qualifying conditions are not fully met.

Superannuation Contributions Taxing Rates – a Summary 3

Complying concessional (tax deductible) contributions within allowable limits to a complying fund (non-high income earners)15%
“Breach” circumstances, such as contributions in excess2 of specified limits before 1 July 2013, or to a non-complying fund47%*
From 1 July 2012:
Higher income earners 1 concessional contributions within allowable limits to a complying fund – on the amount of the over-$250,000 ($300,000 before 1 July 2017) slice of (income + contributions) – Division 293 assessments
30% (i.e. 15% + 15%)
Refunded contributions since 30 June 2013 (see excess)
Marginal rate + interest

1 Applies to the excess over $250,000 ($300,000 before 1 July 2017) the income for surcharge purposes (other than reportable super contributions) Plus low tax contributions. For further info, see the EM for the Bill which passed through Federal parliament in late June 2013.

2 Contributions caps information is tabulated here and the changing treatment of excess contributions since 1 July 2011 is summarised here. * Includes medicare levy, 49% from 2014-15 to 2016-17.

3 Other than contributions, this article does not deal with the taxing of superannuation funds as such, which can derive other kinds of income taxed at varying rates according to circumstances and status.

 

See also

 

 

 

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This page was last modified 2018-11-28