What are Low Tax Super Contributions?
They are most relevant in determining the application of the Division 293 Tax to high-income earners.
Low Tax Superannuation Contributions consist of all contributions made to superannuation where a tax deduction has been claimed (i.e. Concessional Contributions), excluding any excess Concessional Contributions.
Low Tax Superannuation Contributions
When a high-income earner is subject to the effective 30% Contributions Tax through the application of Division 293 (additional 15% on top of the standard 15% Contributions Tax), the tax office will only apply the extra 15% tax on the member’s Low Tax Super Contributions, as opposed to all Concessional Contributions.
The reason for this is because it wouldn’t be fair for the additional 15% Division 293 tax to be be applied to Excess Concessional Contributions.
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Excess Concessional Contributions are first taxed at the standard Contributions Tax rate of 15% upon entering a superannuation account, but then are also added to an individual’s income tax return and taxed at their marginal tax rate.
To then apply a 15% Division 293 Tax on top of that would go against the intention of the legislation.
How To Calculate Low Tax Super Contributions
Low tax superannuation contributions are the sum of:
Employer SG contributions; plus
Any Additional Employer Contributions (e.g. salary sacrifice); plus
Personal Contributions where a tax deduction has been claimed; plus
Assessable Foreign Fund amounts; plus
Defined Benefit Contributions; plus
Assessable Amounts Transferred from a SMSF Reserve.
Excess Concessional Contributions
Low Tax Contributions Using Unused Concessional Carry Forward Rule
From 1 July 2018, individuals with superannuation balances below $500,000 are able to carry forward any unused portion of the Concessional Contribution cap for up to 5 years.
Therefore, from the 2019/2020 financial year the annual Concessional Contribution cap may be exceeded through the provision of the unused carry forward rule without such contributions being classed as excess contributions.
In this instance, such contributions will also be counted as Low Tax Super Contributions, as they do not incur Excess Contributions Tax.
Defined Benefits Low Tax Super Contributions (source ATO)
To figure out the Low Tax Superannuation Contributions made to defined benefit retirement accounts, the total concessional taxed super contributions are collated, disregarding the notional taxed super contributions reported on the Member Contribution Statement, then deduct any Excess Concessional Contributions and add the defined benefit contributions (as reported on the Member Contribution Statement)
Tax on Super Contirbutions
Non-Concessional super contributions do not incur any tax upon entering a superannuation fund.
They are called non-concessional contributions because a tax deduction was not claimed by the contributor.
Non-Concessional contributions are then invested within the super account.
All earnings, including relaised capital gains, derived from investments within a super accumulation account are taxed at up to 15%.
Once a super accumulation account is transferred into pension phase (other than a TTR pension), all earnings are tax free.
Concessional contirbutions incur contirbutions tax upon entering a superannuation account at a standard rate of 15%.
High income earners pay up to an additional 15% on low tax super contributions, as detailed above.
Once a Concessional contribution is invested within a superannuation account, all earnings are taxed in the same manner as Non-Concessional contributions, as detailed above.