Ker-ching! Tax on high income earners’ super raises $300 million

The Australian Tax Office has revealed a tax on superannuation, known as Division 293, has raised nearly $300 million from nearly 100,000 higher income earners, but a leading tax lobby group says the situation is not as bad as it sounds.

Division 293 increased the tax on concessional contributions to superannuation from 15% to 30% for people with pre-tax incomes of $300,000 or more, to a cap in 2012–13 of $25,000.

The Australian Tax Office told SmartCompany it had issued 96,952 Division 293 assessments, worth a total of $293,972,389, during the 2012-13 financial year.

However, this is significantly less than the $1 billion it was predicted to raise at the time of the tax’s introduction.

The tax was introduced by the previous federal government in April 2012 and mirrored an earlier superannuation surcharge under the Howard government, which added a 15% tax slug to people earning more than $70,000 per year. That surcharge was scrapped in 2005 when it became clear it was uneconomical.

Division 293 was justified at the time of its introduction by the then superannuation minister, Bill Shorten, who now serves as opposition leader, on the grounds of increased life expectancy.

“The budget is not driving our superannuation reforms,” Shorten said.

“The fact is Australians are living longer and they will need to have adequate savings to retire. That is what has been and will continue to guide us as we look to reform.”

The tax was also defended by the then tertiary education minister, Craig Emerson, who claimed it would only be levied against the “fabulously wealthy”.

“What I said in fact is that it is worthwhile having a debate about the fact that fabulously wealthy people are able to get an advantage of paying a 15% tax whereas everyday Australians on ordinary wages pay 30% or more,” Emerson said.

But Mark Chapman, head of tax with lobby group Taxpayers Australia, told SmartCompany a possible repeal of Division 293 was not his group’s biggest concern.

“To be honest, we don’t have any issue with this,” says Chapman.

“From an equity point of view, it tends to affect higher income earners, and the numbers involved are not substantial – less than 100,000.”

“From the perspective of someone paying this, even at the 30% rate, if they were taking that income as salary, they’d be paying 49%. So they’re still getting a 19% tax break, and I don’t think this will affect how people save because super is still very effective from a tax point of view.”

“It’s positive the Abbott government retained this,” says Chapman.

“In the budget, we saw a lot of punitive measures.”