Assessing the Threshold of the Division 293 Contributions Tax

Abstract

There has been sustained criticism in recent years over the equity of Australia’s superannuation system tax concessions. While some tax concessions are considered necessary to incentivise retirement savings, the system post-2007 gave a greater benefit to those in higher tax brackets – people who would most likely save for their retirement regardless. The perceived inequity has prompted several reforms, including the introduction of the Division 293 tax. This tax, effective from the 2012-2013 income year, levies an additional 15 per cent contributions tax on high-income individuals. When originally introduced, the threshold for high-income was set at $300,000 per year, however recent legislative amendments have reduced this threshold to $250,000, and the Australian Labor Party has put forward a proposal to lower it even further to $200,000. The purpose of this paper is to evaluate proposed thresholds for the additional 15 per cent tax on high-income earner concessional superannuation contributions contained in Division 293 of the Income Tax Assessment Act 1997 (Cth). We then investigate the effects of applying the Division 293 tax at different thresholds on the amount and distribution of contributions tax concessions. Finally, we determine at which threshold the Division 293 tax should be applied to best satisfy the proposed purpose of superannuation.