How to pay the higher income earners super tax hit

SMSF technical expert and columnist for The Australian newspaper
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The ATO is busy issuing higher income earners with a new tax assessment for the 30% Higher Income Earners tax measure for the 2012/13 financial year.

If you have submitted your personal income tax return and your super fund has submitted its combined income tax and regulatory return, then you might have already received your assessment notice.

How to pay it

You need to check the notice carefully. Unfortunately, the ATO gives you just a short period of time to work out how you want to pay this tax.

There are two options:

  1. You can pay the tax out of non-super fund money. If you select this option then you have 21 days from the tax notice’s date to pay the tax.
  2. You can ask your super fund to pay the tax for you – in this case you need to send your super fund a formal ATO “release authority” that tells your super fund what to do.

If you disagree with the information on the notice, especially the amount of tax owing, then make sure you follow the detailed information about objecting to the Tax Office’s assessment. Please seek advice if you’re unsure. If you want to challenge the information on the notice then you only have a short time to do so.

How income is calculated

For this new measure you include the following amounts to work out if you breach the $300,000 threshold:

  • Taxable income
  • Reportable fringe benefits
  • Total investment losses
  • Your super contributions (see below)

From these amounts you deduct the following:

  • Some tax-free distributions from family trusts
  • Some super benefits included in your tax return if you’re aged at least 55 but under 60 that receive a tax offset so the benefit is concessionally taxed

Who will get a notice

If you earn more than $300,000 in the 2013 financial year, then your super contributions that take your income above $300,000 will be taxed at 30% and you will receive a notice, also called a Division 293 tax assessment.

What super contributions does it apply to?

As far as super contributions are concerned the following amounts are added to your income amount worked out above:

  • All employer super contributions
  • Personal super contributions claimed as a tax deduction
  • Allocations from reserves above a reasonable amount

All other super contributions are excluded from this new tax measure including the following:

  • Excess concessional and non-concessional contributions
  • Most transfers from foreign super funds
  • Rollovers containing an untaxed Taxable Component (primarily paid from unfunded public sector super funds)

This is quite a nasty unfair tax. Throughout my life it’s been the Coalition’s job to repair the state of most Australian government’s (Federal, State and Territory) finances. Hopefully when the Coalition can pull the Federal finances back into better shape they can then dump this tax measure.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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