client alert |
explanatory memorandum
August 2013
CURRENCY:
This issue of Client Alert takes into account all developments up to and including 17 July 2013.
Specific tax rule to prevent dividend washing
On 28 June 2013, the Assistant Treasurer announced that the Government will prevent "dividend washing"
by introducing a specific integrity rule into the tax law. This follows the Government’s 2013–2014 Federal
Budget announcement that it will implement reforms to close, with effect from 1 July 2013, a loophole it says
currently enables sophisticated investors to engage in "dividend washing".
"Our approach will ensure that sophisticated investors are no longer able to receive two sets of franking
credits on what is essentially the same parcel of shares," said Mr Bradbury. He added that the measure "will
not have an impact on typical 'mum and dad' investors, as it will only apply to investors that have franking
credit tax offset entitlements in excess of $5,000". Further, he said the "measure has been targeted to
ensure that it will not impact on ordinary trades undertaken on share markets". According to this latest
announcement, the measure is still proposed to commence from 1 July 2013.
Key features of the proposed specific integrity rule include the following:
•
The integrity rule will be inserted into the Income Tax Assessment Act 1997 (ITAA 1997).
•
It will be targeted to the period between the ex-dividend date and the record date of a membership
interest. The record date is the day on which a company closes its share register to determine which
shareholders are entitled to a dividend. Under Australian Securities Exchange procedures, the exdividend date comes four business days before the record date.
•
During this period, the rule will be activated to the extent that an entity, or an associate of an entity,
disposes of the relevant membership interest without the right to the dividend (that is, on an ex-dividend
basis), and then acquires a substantially identical membership interest with the right to the dividend (that
is, on a cum-dividend basis).
•
When the rule is activated, the entity will not be entitled to a franking credit tax offset on the distribution
on the membership interest acquired with the right to the dividend, and the amount of the franking credit
on the distribution on the acquired membership interest will not be included in the assessable income of
the entity.
On 3 June 2013, the Government issued a discussion paper that canvassed potential approaches to
preventing dividend washing. Treasury received 10 submissions in response to the Government's discussion
paper. A summary of the submissions and Treasury's responses are available on the Treasury website at:
www.treasury.gov.au/ConsultationsandReviews/Submissions/2013/Dividend-Washing.
The Assistant Treasurer said "further consultation will occur on exposure draft legislation in due course".
Source: Assistant Treasurer's media release, 28 June 2013,
www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/127.htm&pageID=003&min=djba&Year=
&DocType=.
Individual denied interest deduction
The Administrative Appeals Tribunal (AAT) has upheld the Commissioner's decision to disallow a taxpayer's
claim for a personal deduction for interest and bank fees of over $120,000. These were incurred over a twoyear period in relation to rental properties purchased by a family discretionary that had been set up for that
purpose, and of which the taxpayer was the trustee. In arriving at its decision, the AAT found that objective
evidence overwhelmingly disclosed that the bank lent the money to the taxpayer in his capacity as trustee for
the trust, and not in his personal capacity (and that the taxpayer had not proved that the bank had been
mistaken in relation to the legal character of the person to whom it had lent the money).
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Furthermore, the AAT found that a variation to the trust deed made immediately after the trust had been
established, which purported to make the taxpayer the sole beneficiary of all the rental income from the trust,
was ineffective. The AAT therefore found that the taxpayer could not argue there was the relevant nexus
between the interest and bank fee outgoings and the deriving of assessable rental income from the trust that
would make the outgoings deductible. In particular, the AAT found that the deed of variation was not an
effective exercise of the power to amend the trust deed as it was exercised solely for the taxpayer's benefit
and without fulfilling the obligation to disclose details of the variation to the other beneficiaries of the trust.
In arriving at its decision, the AAT also noted that even if the distributions of rental income were properly
made to the taxpayer pursuant to the relevant power in the trust deed, the taxpayer had no more than a
"mere expectancy" of receiving rental trust income as he was not presently entitled to the income when the
relevant expenditure was incurred. As a result, there was an insufficient nexus between the outgoings and
the derivation of the assessable income.
The AAT also noted that Subdiv 960-E of the ITAA 1997 provides that a legal person can have a number of
different capacities in which that person acts, and that in each of those capacities, the person is taken to be
a different entity for the purposes of the tax law. Furthermore, in this regard, it found that the entity that had
borrowed moneys from the bank was the trustee of the family trust and that the trustee’s status as borrower
would not change, even if the taxpayer ceased to be the trustee at a later time. The AAT also commented
that in the event it was wrong on this issue, the effect of the deed of variation created problems for the
taxpayer, who was aware of the need to demonstrate that he had a present entitlement to the rental income
from the trust in order to claim the relevant deductions.
Finally, the AAT found that it was not in a position to interfere with the Commissioner's imposition of 25%
shortfall penalties for failing to take reasonable care. This was because the taxpayer had not complied with
the requirements for objecting against the imposition of the penalties and, in particular, the requirement to
state the grounds for their remission. As a result, the AAT concluded that without knowing the grounds on
which the taxpayer intended to argue for remission of penalties, it could not embark upon such an enquiry
itself (and that it would "not be fair" in the circumstances for it to make an order expanding the grounds
stated in the notice of objection).
Re Lambert and FCT [2013] AATA 442, www.austlii.edu.au/au/cases/cth/AATA/2013/442.html.
Overseas doctor a tax resident of Australia
The AAT has held that a taxpayer was a "resident of Australia" during the relevant years.
Background
The taxpayer was a doctor who had been working outside Australia since 2006. In October 2011, the
taxpayer sought a private ruling from the Commissioner to declare him a non-resident of Australia for the
2010, 2011 and 2012 income years ("the relevant years"). The Commissioner did not agree and issued a
private ruling that the taxpayer was a resident of Australia during the relevant years for Australian tax
purposes. The taxpayer objected against the ruling, but the objection was disallowed.
The AAT heard various facts concerning the taxpayer, including that he had been employed in East Timor
since 2006 and spent nine to 11 months of the year in East Timor, with the remainder of his time spent in
Australia (Sapphire Beach in New South Wales) and Bali. When in East Timor, the taxpayer stayed in a twobedroom, self-contained apartment, which was supplied by his employer. The taxpayer and his wife owned a
property in Sapphire Beach which was described in the ruling as the "family home". The taxpayer and his
wife also had a 55-year lease on a property in Bali, which they called home. Before the AAT, the taxpayer
submitted that, in essence, he "resided" in East Timor as that was where he spent his time and lived.
Decision
The AAT said the question was not whether the taxpayer resided in East Timor or Bali, but whether the
taxpayer resided in Australia. The AAT was satisfied that the taxpayer "resided" in Australia during the
relevant years. It said that the "continuity of association" the taxpayer had retained with Australia was a
significant factor. The AAT noted, among other things, that the taxpayer did "not seem to have brought
himself to regard East Timor as home", noting that the taxpayer and his wife regarded the Bali property as
their home.
The AAT also noted that the taxpayer did "not express an intention to remain in East Timor after his
employment ends" and that "his connection with that location appears to be one based almost entirely on his
employment arrangement". The AAT said the taxpayer expressed "an intention to divide his time between
Bali and Sapphire Beach – hardly an indication that his ties with Australia have been broken". Accordingly,
the Commissioner’s objection decision was affirmed.
Re Pillay and FCT [2013] AATA 447, www.austlii.edu.au/au/cases/cth/AATA/2013/447.html.
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Partnership denied GST credits
The AAT has found that a partnership was not carrying on an enterprise and was not entitled to input tax
credits claimed in respect of the relevant period.
Background
The taxpayers (a husband and wife couple) were registered as a partnership for the purposes of the A New
Tax System (Goods and Services Tax) Act 1999 (GST Act). The key issue between the Commissioner and
the taxpayers was whether the partnership was carrying on an enterprise in the tax periods between 1 April
2007 and 31 March 2011 (the relevant period). The Commissioner argued that the activities engaged by the
partnership were not in the form of a business within the meaning of s 9-20(1)(a) of the GST Act. In addition,
the Commissioner that argued the activities of the partnership were conducted without reasonable
expectation of profit, thereby enlivening the exclusion in s 9-20(2)(c) of the GST Act.
The Commissioner had cancelled the GST registration of the partnership with effect from 31 March 2011, but
later reinstated it with effect from 24 February 2012. The Commissioner had formed the view that the
partnership was not carrying on an enterprise during the relevant period, and was therefore not entitled to
claim input tax credits (ITCs) on acquisitions made. However, the Commissioner argued that the partnership
was still liable to pay GST in the relevant period, relying on s 105-65 of Sch 1 to the Taxation Administration
Act 1953 (TAA) (restrictions on GST refunds), and assessed the partnership on positive net amounts for the
relevant tax periods.
The AAT noted that the background facts were "quite unusual". Broadly, one of taxpayers (Mr Naidoo)
claimed that during the relevant period, the partnership provided certain services (understood to be
maintenance and handyman work) to another entity, K Co, which owned and operated a hotel. K Co was
previously owned by the couple's sons; however, the couple took over in mid-2007 after the sons decided
they no longer wanted to be in the hotel business.
A key reason for the couple's interest in K Co was that they had provided a loan to K Co to acquire the hotel
and there were no repayment terms for that loan. Mr Naidoo claimed he worked in the morning and evenings
for K Co in his capacity as director and employee, and that during the middle of the day he worked as a
partner of the partnership, providing contracted services to K Co.
Following an audit of the taxpayers' affairs, the Commissioner decided that the partnership was liable to pay
GST totalling $19,011. The Commissioner also imposed an administrative penalty of 50% (totalling
$17,686.50, which was calculated based on a shortfall amount of $35,373). Before the AAT, the
Commissioner suggested that the partnership was put in place in order to reduce the taxpayers' personal
taxable incomes (noting that for the 2007 to 2011 income years, the partnership reported losses), and to
ensure that Mr Naidoo was paid for the long hours spent working at the hotel as an employee of K Co.
Decision
The AAT concluded that the partnership was not carrying on an enterprise during the relevant period. The
AAT was not convinced that the partnership was an entity providing services to K Co. Rather, the AAT was
of the view that the handyman work provided by Mr Naidoo was undertaken in his capacity as a director and
employee of K Co. Accordingly, the AAT held that the partnership did not undertake an activity, or series of
activities, in the form of a business in the relevant period (per s 9-20(1)(a)). In doing so, it also found that "the
reasons for the existence of the [partnership] included to provide income tax benefits to [the couple]". In that
regard, it also held that, even if there was an enterprise, the exclusion in s 9-20(2)(c) would apply because
there was no reasonable expectation of profit or gain.
Therefore, the AAT decided that the Commissioner was required to cancel the GST registration of the
partnership. (The AAT did raise the issue as to whether the GST registration should have been cancelled
with effect from 1 April 2007, the beginning of the relevant period. However, the AAT did not address the
question as it was not the subject of review.) The AAT also concluded that the partnership was not entitled to
claim ITCs during the relevant period.
However, the AAT held that s 105-65 of Sch 1 to the TAA did not apply in the way the Commissioner
contended and that the net amount in the relevant period was zero (ie not a positive net amount). It
concluded that s 105-65 of Sch 1 to the TAA was not a provision that allowed the Commissioner to alter the
net amount calculated under s 17-5(1) of the GST Act. The AAT said the Commissioner's assessment of the
net amounts was based on GST amounts reported by the partnership in each of the tax periods, which were
"incorrectly reported GST amounts". It held that the amount owed by the partnership to the Commissioner
was instead the amounts that were overpaid by the Commissioner to the partnership for each of the relevant
tax periods. (The partnership had reported negative net amounts for most of the tax periods in question.)
The AAT also affirmed the Commissioner's decision to impose an administrative penalty of 50% for
"recklessness", but ordered that it only be applied to the tax shortfall in accordance with the AAT’s reasoning
about s 105-65. It said the 50% penalty should be calculated in respect of amounts that were overpaid by the
Commissioner to the partnership as GST refunds. This meant that a lower amount of penalty applied, being
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$8,438 (or 50% of $16,876). However, the AAT agreed with the Commissioner that there were no
circumstances warranting remission of penalties.
Re Naidoo and FCT [2013] AATA 443, www.austlii.edu.au/au/cases/cth/AATA/2013/443.html.
Division 7A benchmark interest rate
Taxation Determination TD 2013/17 states that for the income year that commenced on 1 July 2013, the
benchmark interest rate for the purposes of ss 109N and 109E of the Income Tax Assessment Act 1936 is
6.20% (down from 7.05% per annum for 2012–2013).
The benchmark interest rate is relevant to private company loans made or deemed to have been made after
3 December 1997 and before 1 July 2013, and to trustee loans made after 11 December 2002 and before
1 July 2013. It is used to:
•
determine if a loan made in the 2012–2013 income year is taken to be a dividend (s 109N(1)(b) and, as
applicable, s 109D(1) or s 109XB); and
•
calculate the amount of the minimum yearly repayment for the 2013–2014 income year on an
amalgamated loan taken to have been made prior to 1 July 2013 (s 109E(5)).
The Determination also states that for private companies with substituted accounting periods, Taxation
Determination TD 2001/8 applies.
Source: Taxation Determination TD 2013/17, http://law.ato.gov.au/pdf/pbr/td2013-017.pdf.
Reasonable travel and meal allowance amounts
Taxation Determination TD 2013/16 sets out the amounts the Commissioner considers are reasonable for
the 2013–2014 income year in relation to the following claims:
•
Overtime meal allowance expenses – the reasonable amount is $27.70.
•
Domestic travel allowance expenses – the reasonable amounts are given for: (i) accommodation at
daily rates (for domestic travel only); (ii) meals (showing breakfast, lunch and dinner); and (iii) deductible
expenses incidental to travel.
•
Travel allowance expenses for employee truck drivers – these are as follows:
•

for salaries of $108,810 and below, the reasonable amount for food and drink is $91.60 per day
($22.30 for breakfast; $25.45 for lunch; $43.85 for dinner); and

for salaries of $108,811 and above, the reasonable amount for food and drink is $99.95 per day
($24.90 for breakfast; $25.45 for lunch; $49.60 for dinner).
Overseas travel allowance expenses – the reasonable amounts for overseas travel expenses are
shown in Appendix 1 to the Determination. Table 1 of Sch 1 sets out the cost group to which a country
has been allocated. Table 2 of Sch 1 sets out the reasonable amount for meal expenses and incidental
travel expenses for each cost group for specified employee salary ranges. If the employee travels to a
country that is not shown in Table 1 of Sch 1 the employee can use the reasonable amount for Cost
Group 1 in Table 2 for the relevant salary range.
Source: Taxation Determination TD 2013/16, http://law.ato.gov.au/pdf/pbr/td2013-016.pdf.
Car depreciation limit
Taxation Determination TD 2013/15 states that the car limit for the 2013–2014 financial year is $57,466.
The car limit is used to work out decline in value deductions of certain cars under the income tax law.
The ATO says the index for the year ended 31 March 2012 was 401.5 and the index for the year ended
31 March 2013 was 395.1, resulting in an indexation factor of 0.984. As the indexation factor is less than 1,
the car limit for the current year has not been indexed and remains the same as the previous year.
Source: Taxation Determination TD 2013/15, http://law.ato.gov.au/pdf/pbr/td2013-015.pdf.
Key superannuation changes
The Government has recently enacted a number of key changes to superannuation.
Excess concessional contributions
The Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 and the
Superannuation (Excess Concessional Contributions Charge) Bill 2013 received Royal Assent on 29 June
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2013 as Act Nos 118 and 116, respectively. They were introduced in the House of Representatives on
19 June 2013 and passed all stages without amendment.
Broadly, the Bills amended the ITAA 1997 and the TAA to establish a new excess concessional contributions
tax system from 1 July 2013. The Government believes this is fairer for individuals who exceed their annual
concessional cap.
The new rules seek to ensure that individuals who make excess concessional contributions are taxed on the
contributions at their marginal tax rates, rather than an effective 46.5% tax applying to all taxpayers. Under
the changes, excess concessional contributions tax no longer applies from 1 July 2013. Instead, a new Div
291 of the ITAA 1997 provides that excess concessional contributions are automatically included in an
individual's assessable income, and subject to an interest charge to account for the deferral of tax. The
charge (equal to the shortfall interest charge) is payable on the increase in the individual's tax liability that
arises as a result of having excess concessional contributions for the relevant financial year. Notably, there
is no discretion for the Commissioner to remit the charge.
Prior to these changes, concessional contributions in excess of the annual cap were effectively taxed at the
top marginal tax rate of 46.5%. This was because concessional contributions in excess of the annual
concessional cap were subject to excess contributions tax at the rate of 31.5%, plus the 15% contributions
tax paid by the fund. Further, excess concessional contributions counted towards the taxpayer's nonconcessional cap. The concessional cap is generally $25,000 (or $35,000 in 2013–2014 for those aged 59
years or over on 30 June 2013: see below). "Concessional contributions" include all employer contributions
(such as superannuation guarantee and salary-sacrifice contributions) and personal contributions for which a
deduction has been claimed.
The then Minister for Superannuation and Financial Services, Bill Shorten, said the effective tax rate of
46.5% for excess concessional contributions was a severe penalty for individuals below the top marginal tax
rate. In contrast, individuals on the top marginal rate effectively faced no penalty and benefited from being
able to defer the timing of their taxation. Mr Shorten said the amendments in the Bills were designed to
ensure that individuals are taxed on excess concessional contributions in the same way as if they had
received that money as salary or wages and had chosen to make a non-concessional contribution. The
Government expects that the reform will reduce the tax liability of around 40,000 people in 2013–2014, by an
average amount of $1,100.
It is important to note that this new regime for concessional contributions will not apply to excess nonconcessional contributions, which will continue to be hit with 46.5% tax.
Date of effect
The amendments apply in the 2013–2014 income year (and corresponding financial year) and later income
years (ie to concessional super contributions made on and after 1 July 2013).
Sources: Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013,
www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5106;
Superannuation (Excess Concessional Contributions Charge) Bill 2013,
www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5105;
Minister for Superannuation and Financial Services media release No 050, 19 June 2013,
www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2013/050.htm&pageID=003&min=brs&Year=&
DocType=.
Other key changes
The Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other
Measures) Bill 2013 received Royal Assent on 28 June 2013 as Act No 82 of 2013. It was introduced into the
House of Representatives on 15 May 2013 and passed all stages without amendment. It introduced a higher
concessional contributions cap of $35,000 for older Australians and an extra 15% contributions tax for very
high income earners (see below for details).
The Bill also implemented a range of technical amendments that apply from 2012–2013 to improve the
operation of the low income superannuation contributions (LISC) regime for those with adjusted taxable
incomes below $37,000.
Higher contributions cap of $35,000
The Bill amended the Income Tax (Transitional Provisions) Act 1997 (TPA) to implement a higher
concessional contributions cap for certain persons. Instead of the general concessional cap of $25,000, a
cap of $35,000 will apply for people aged 60 years or over from 1 July 2013 (see below regarding further
details of the exact eligibility age). From 1 July 2014, this increased cap will apply for people aged 50 to 59
years (also see below). The higher concessional cap is temporary and will cease to apply when the general
cap reaches $35,000 through indexation (which is expected to be 1 July 2018; notably, the general cap is
expected to rise to $30,000 through indexation from 2014–2015). The higher concessional cap will not affect
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the non-concessional contributions cap, which remains at six times the general concessional cap of $25,000
for all individuals, regardless of age.
Eligible age for higher cap
Previously, eligibility for the higher concessional cap that existed up to the 2011–2012 financial year applied
where the individual reached 50 years of age in the relevant financial year (ie eligibility was based on an
individual's age as at 30 June in the relevant financial year). However, if an individual died before their 50th
birthday, they did not qualify for the higher cap and their estate could have been issued with an excess
contributions tax assessment, which would not have been the case had they reached 50 years.
Accordingly, the new rules determine eligibility for the higher cap that applies from 1 July 2013 by reference
to an individual's age as at 30 June in the year preceding the relevant financial year in which the higher cap
applies. That is, the $35,000 concessional cap for 2013–2014 applies to taxpayers who were aged 59 years
or over on 30 June 2013. Similarly, from 2014–2015 the $35,000 cap will apply to taxpayers who are aged
49 years or over on 30 June of the previous financial year: new s 292-20 of the TPA.
EXAMPLE: Victoria's birthday is 12 May 1954 and she is aged 59 years on 30 June 2013. For the 2013–
2014 financial year, Victoria's concessional contributions cap will be $35,000 instead of the general $25,000
cap (but her non-concessional contributions cap remains at $150,000).
Date of effect
The higher cap applies from the 2013–2014 financial year for taxpayers who were aged 59 years or over on
30 June 2013 (or from 2014–2015 for taxpayers who will be aged 49 years or over on 30 June 2014).
Extra 15% contributions tax for $300,000+ incomes
The Bill also gave effect to the Government's 2012–2013 Budget measure to double the effective
contributions tax from 15% to 30% from 1 July 2012 for concessional contributions made on behalf of
individuals with incomes greater than $300,000. Additionally, the Superannuation (Sustaining the
Contribution Concession) Imposition Bill 2013, which received Royal Assent on 28 June 2013 as Act No 87
of 2013, establishes the mechanism by which the additional 15% tax is payable on a person's taxable
contributions (ie under new s 293-15 of the ITAA 1997). The Bill was introduced into the House of
Representatives on 15 May 2013 and passed all stages without amendment.
Without the amendments, the 15% tax on concessional contributions (paid by the receiving superannuation
fund) provides high income earners with a larger tax concession than those on lower marginal tax rates.
However, despite the extra 15% tax on contributions for individuals with incomes above $300,000, there will
still be an effective tax concession of 15% (ie the top marginal rate less 30%) on their concessional
contributions up to the cap of $25,000 (or, from 2013–2014, $35,000 for older individuals: see above).
Division 293 tax
Specifically, the Bill inserted a new Div 293 into the ITAA 1997 to apply an additional 15% of "Div 293 tax" on
"taxable contributions" for taxpayers above the "high income threshold" of $300,000 in relation to affected
contributions from 1 July 2012. That is, the effective contributions tax is doubled from 15% to 30% for
concessional contributions (up to the cap of $25,000, or $35,000 if applicable) made on behalf of individuals
who are above the $300,000 income threshold, thereby effectively reducing the tax concession on such
contributions from 30% to 15%.
$300,000 high income threshold
From 2012–2013, the extra 15% tax under new Div 293 is payable by individuals whose combined "income
for surcharge purposes" (less reportable superannuation contributions, to avoid double counting) and "low
tax contributions" (ie concessional contributions up to the cap of $25,000, or $35,000 if applicable) exceed
$300,000 for an income year: new s 293-20 of the ITAA 1997. In this case, a taxpayer will have "taxable
contributions" that are subject to an extra 15% of Div 293 tax. However, the amount of taxable contributions
is restricted to the lesser of the low tax contributions and the amount of excess over $300,000.
A taxpayer's "low tax contributions" is essentially his or her "concessional contributions" (as modified by the
special rules for certain defined benefit interests: see below), less any excess concessional contributions for
the year: new ss 293-25 and 293-30. Importantly, this means that the extra 15% contributions tax does not
apply to concessional contributions that exceed a taxpayer's concessional contributions cap (whether
$25,000 or $35,000). Such excess concessional contributions are, in any event, already effectively taxed at
the individual's top marginal tax rate.
An amount of excess concessional contributions that is refunded under s 292-467 is included for the
purposes of the $300,000 threshold (despite being excluded from low tax contributions) as it is included as
"income for surcharge purposes". However, excess concessional contributions disregarded on under s 292465 (due to special circumstances) are low tax contributions and therefore counted for the purposes of the
$300,000 threshold.
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The Government has adopted the definition of "income for surcharge purposes" for the purposes of the high
income threshold test to prevent individuals from attempting to manipulate their taxable income (eg via
salary-packaging arrangements or negative gearing) so as to reduce or avoid the extra Div 293 tax. "Income
for surcharge purposes" is used to determine whether an individual is liable for the Medicare levy surcharge.
It is defined in s 995-1 of the ITAA 1997 to include:
•
taxable income (after adding back any amount that was exempt because family trust distribution tax was
paid in relation to it);
•
total reportable fringe benefits (if any);
•
reportable superannuation contributions;
•
total net investment losses (ie both net financial investment losses and net rental property losses);
•
less any superannuation lump sum amounts for the income year for which the taxpayer is entitled to a
tax offset.
The tax payable is 15% of the amount of the low tax contributions that exceed the $300,000 threshold. That
is, if an individual's income (excluding their concessional contributions) is less than the $300,000 income
threshold, but the inclusion of their concessional contributions pushes them over the threshold, the increased
tax rate only applies to the part of the contributions that are in excess of the high income threshold. If a
taxpayer does not have low tax contributions, there is no liability for the extra Div 293 tax.
EXAMPLE: Sabina's income (income for surcharge purposes other than reportable superannuation
contributions) is $285,000 for an income year and her low tax contributions are $25,000 for the
corresponding financial year. Sabina's combined income and low tax contributions are $310,000, being
$285,000 (income for surcharge purposes other than reportable superannuation contributions) plus $25,000
(low tax contributions). The amount of low tax contributions ($25,000) is greater than the amount by which
combined income and low tax contributions exceed the $300,000 threshold (being $10,000, or $310,000 less
$300,000). Hence, Sabina's taxable contributions are $10,000 and the extra Div 293 tax payable is $1,500
(ie 15% of $10,000).
Special rules for defined benefit interests, judges etc
The Bill introduced special rules to apply the additional 15% tax to higher-level state office holders with
incomes above the $300,000 threshold who have defined benefit interests and salary-packaged
contributions in respect of constitutionally protected funds.
However, an exemption applies to certain Commonwealth justices and judges in respect of contributions for
a defined benefit interest in a superannuation fund under the Judges' Pensions Act 1968, and temporary
residents who depart Australia. These complex special rules in new Subdivs 293-D to 293-G of the ITAA
1997 modify the rules for these individuals.
Date of effect
The amendments apply in relation to affected contributions from the 2012–2013 income year.
Sources: Tax and Superannuation Laws Amendment (Increased Concessional Contributions Cap and Other
Measures) Bill 2013,
www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5035;
Superannuation (Sustaining the Contribution Concession) Imposition Bill 2013,
www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5034.
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