Division 293

Hubby received a Division 293 Notice of Assessment from the Australian Taxation Office

We thought this was due to sale of a property and increased income for the year, though it seems to be all about Superannuation, the former affects the latter

Tax deductions pulled the income down for the year but the threshold must have been breached

Either the Super Fund can pay the additional tax or he can pay

 

And....Not sure of the question or knowledge you share.

Div 293 is a extra 15% tax on super contributions ((ie total 30%) for higher income earners. The income test is based on assessable income (incl cap gains) PLUS the concessional contributions made. The trigger is a test of $250K.

The information accompanying the notice does explain it in detail

 

Came across this for the first time yesterday.
Paid an extra 8k to the ATO from our SMSF.

 

Its important to remember that Div293 is largely unavoidable. However a IP loss can assist.
But assuming is inevitable then its important to remember its a extra 15% tax on contributions. If salary sac or if made correctly as a member personal deductible contribution then the marginal rate tax savings are 47% less 30% = 17% x the amount contributed ABOVE SGC required minimums.

eg Extra $10K contributed would still be a $3000 pa personal tax benefit less an extra $1500 in further contribution tax.

Other benefits of being in super is enhanced compound returns and growth since there is a lesser tax rate on earnings in successive years

 

If you have a discretionary trust and you’re allocating income to persons on the highest tax rate: consider retaining income in the trust and paying tax in the trust at 47%.

This will reduce the Div 293 tax as the individuals taxable income is lower.

 

@Ross Forrester why wouldnt a client want to setup a bucket company and distribute to that and pay the distribution across.

The setups fees and ongoing fees would be much less than paying an additional 17%

 

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Actually the bucket company may get a 27.5% tax rate so the savings could be 19.5%. Huge difference - for every $1mil in profit that is $195,000 in tax saved

 

thats right. the ATO take a very liberal view in TR 2017/D7 (yes everyone i know its draft but it shows the ATO views) of what constitutes carrying on a business.

In particular, the ATO take the view that a ‘bucket’ company will be considered to be ‘carrying on a business’ (and potentially eligible as an SBE) where it invests in any activity that has a purpose or prospect of profit.

having a complying Division 7a loan agreement would have the purpose or prospect of a profit.

 

Because the client has spent all of the money into their private mortgage so the company will trigger franked divs anyway? They are getting divorced and they don’t want fights over future unpaid or deferred tax liabilities?

And endless list of reasons why budget companies are not a good outcome in every instance.

 

Why would you have a franked dividend in yr 1 ? You have until the earliest of the lodgement date or due date for lodgement to put a complying loan agreement in place.

No minimum payment required for first year loan youve just deferred tax in yr 1 and its spread over 7 years. In your scenario 47% ouch in first year.

Yes division 7a if they have put into their mortgage but so what. If you can defer tax and spread it why on earth would you pay 47%

And if doing tax planning before 30 june why couldnt they take it out of the offset back into the company wait after 1 july and then do division 7a. Thats 2 years deferred !!!

Sorry ross but that particular example i cannot see a benefit to the client having the trustee taxed. Happy to be wrong but i cant see it.

 

If the trustee is paying the tax that means no beneficiary would be presently entitled to the income. if this is the case the client would not have access to the funds to pay down their loans or have used them in any way - unless it was a loan from the trustee or a distribution of capital perhaps.

 

Recently read the below re: 293

From 1 July 2017, the income threshold above which individuals pay an additional 15% tax on certain superannuation contributions reduced from $300,000 to $250,000. In December 2018 the ATO began issuing over 90,000 Division 293 notices for the 2017/18 income year. It is estimated that approximately 44,000 individuals will receive their first Division 293 notice early in 2019.

 

Yep, sadly the missus got one of these as she had some capital gains that pushed her over by about 2k.

Interestingly, her taxable income was actually under but they add back on any investment losses.

 

I have encountered two people in recent days who think bucket companies and comply D7A agreements are a perfect fix. Who need to wind up the company for a variety of reasons. This can trigger a concern.

Too many taxpayers get what seems sound tax advice but later change their mind and fail to consider the consequences of the complying agreement when it becomes non-complying and they forget that the loan just defers a problem. It can crystalise a concern in some cases and I know of at least one instance where the tax adviser was sued for not mentioning the full conditions which applied. They said - Oh but that would need legal advice. The legal spat focused on that but the PI insurer paid. Another was a lawyer who facilitated the loan agreement and didnt mention the tax issues could be triggered when the company was liquidated and the liquidator could demand repayment. (I believe unsuccessful as the agreement contained a suitably worded plain english explanation)

 

From the paper

If Labor wins on May 18, it will drop it further to $200,000. Like the thresholds for personal income tax brackets, the division 293 tax threshold is not indexed. So as each year passes and incomes gradually rise, more taxpayers drift into the division 293 orbit.

Labor has promised three other major changes to super should it win the election, all of which are designed to limit people’s capacity to make extra contributions to super. It’s important to remember that contributions to super can be pre-tax (concessional) or post-tax (non-concessional), and that there are limits on both. From a government point of view, limits exist because whatever concessions are offered translate into foregone tax revenue for the federal budget. But for individuals, additional tax and restrictions on contributions mean less money in retirement.

Labor’s super changes represent a beefed-up version of the Coalition’s 2016 budget, the centrepiece of which was the introduction of a total super balance of $1.6 million.

A Shorten government has pledged to further lower the annual non-concessional (after-tax) contributions cap to $75,000. It currently sits at $100,000. Labor will also axe the carry-forward (or catch-up) concessional contribution provision and make personal super contributions non-deductible for employees, raising the spectre of a reintroduced “10 per cent rule”.

 

I read these in the AFR yesterday (paywall). However they are picked up here as well - linky

Some of the worst - personal contributions to super will no longer be tax deductible (this sux if your employer doesn't offer salary sacrifice or reduces their contribution by your salary sacrificed contribution), lowering the non-concessional cap further/bring forward rule (it's almost impossible to get to $1.6m over a lifetime with the way the contributions stand), removing the carry forward provisions.

The clanger is "Banning new limited recourse borrowing arrangements (LRBAs)"

So much for the party which fought so hard to introduce super for the working man/woman.

 

To be fair they are hardly changes that are going to affect the average working man or woman.

DIV 293 cap coming down sucks if your now affected compared to the previous arrangement, but it's not exactly unfair.

 

Many proposed changes to super under ALP. Its another policy that seeks to repeat Julia Gillards and Kevin Rudds campaign of taxing the poor to handout to the lazy. Nothing has changed other than a volume of policies which all seek to pull billions of new, increased and changed taxes in

- Div 293 threshold reduction to $200K (actually its really 175K salaries) to capture around 15% more of the workforce
- re-instate the 10% test for personal super contributions and as a consequence otherwise stop personal deductions otherwise
- No carry forward of unused cap
- Reduced non-concessional cap of $75K pa

Only one aspect of super taxation isnt harmed by a policy. That is the CGT discount wont be reduced or removed under the changes to taxing long term CGT gains

 

Unfair ?? Hmmm. Someone earning $200K already pays a marginal tax rate of 45% which is higher than the 37% applicable to a lesser earner. They also pay private health insurance to lessen the burden of the so called free universal scheme on the lesser paid. And the universal super contributions Keating promised are now being clawed away blaming hard work, initiative and effort for the issue. (A socialist ALP position that continues) And they face increased premiums on their private health which dont attract any offset. But if they bail out they face medicare levy surcharge so there is no winning. And face losing the private health insurance offset under the ALP anyway.

The tax system was designed to increase taxes for the higher paid and now the ALP are doubling down as much as they can wherever they can.

Wait until the unions start their industrial campaigns. The ALP have already started to shout about pay rises.

 

No one is talking productivity to offset higher wages. The absence of one side of the triangle just leads to higher prices, higher inflation, reduction in the willingness to employ (greater unemployment) and the sky falling.