Contributions made under the SG amnesty will not cause/increase a Division 293 tax liability
An individual is subject to an additional tax under Division 293 of the ITAA 1997 (‘Division 293 tax’) where the sum of the following exceeds $250,000:
- the individual’s ‘income for surcharge purposes’ less reportable superannuation contributions (with this net amount broadly being their taxable income disregarding investment losses, plus any reportable fringe benefits); and
- their ‘low tax contribution’ (‘broadly their concessional contributions other than excess concessional contributions).
When Division 293 tax applies, the individual must pay tax at a rate of 15% on lesser of the amount by which that sum exceeds $250,000 or the individual’s low tax contributions.
Subject to the following new exclusion, an employee’s ‘low tax contributions’ would include any contributions made by the Commissioner representing late SG payments as well as SG contribution made by their employer to offset their liability to pay the SGC.
However, to ensure contributions made under the SG amnesty do not create (or increase) a Division 293 tax liability for employees, a contribution that is either:
- a contribution made by the Commissioner for the employee’s benefit representing SGC paid by an employer to the ATO; or
- a late SG contribution made by their employer to offset their liability to pay SGC,
is excluded from an individual’s ‘low tax contribution amounts’ if the contribution has been made as a result of a disclosure made under the SG amnesty and the employer qualified for the amnesty. Refer to new S.293-30(4)(c) and (d) of the ITAA 1997.
Effectively, this exclusion will ensure that contributions made under the SG amnesty do not attract additional Division 293 tax or cause other low tax contribution amounts to attract additional Division 293 tax. Example:
- Tom’s income for the purpose of Division 293 tax is $240,000 in the 2020 income year, which includes concessional contributions (i.e., ‘low tax contribution’) of $21,000. Tom’s employer had not been making adequate superannuation contributions over a number of years.
- In June 2020, Tom’s employer makes a $60,000 contribution on his behalf following a disclosure under the SG amnesty in June 2020. Tom’s employer makes the contribution directly and elects for the contribution to be used to offset their SGC liability.
- In the absence of the exclusion discussed above, Tom’s income for Division 293 tax purpose would increase to $300,000 (i.e., $240,000 + $60,000) and he would have a Division 293 tax liability of $7,500 (15% x ($300,000 - $250,000)). However, as the $60,000 contribution is made under the SG amnesty, it will not be a ‘low tax contribution’ and Tom’s income for Division 293 purposes will remain at $240,000 (i.e., below the $250,000 threshold).
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- Superannuation Guarantee Amnesty (1) – Employers’ Obligations
- Superannuation Guarantee Amnesty (2) – Consequences for Not Meeting SG obligations
- Superannuation Guarantee Amnesty (3) – Eligibility for The SG Amnesty
- Superannuation Guarantee Amnesty (4) – Benefits from The SG Amnesty
- Superannuation Guarantee Amnesty (5) – Increased Minimum Penalty for Employers Ignore the SG amnesty
- Superannuation Guarantee Amnesty (6) – Contributions Made Under the SG Amnesty (1)