If my client receives a lump sum from superannuation, will the lump sum be included in their “income” for Division 293 purposes?

Potentially, but this will depend on why your client is receiving the lump sum, their age, the amount paid and the components of the lump sum. 

Individuals subject to Division 293 tax are levied with an effective tax rate of 30% on their concessional superannuation contributions, rather than the usual 15% rate. This additional 15% tax is colloquially known as “Div 293 tax”.

Div 293 tax is applied to certain concessional contributions where an individual’s combined “income” and “low tax contributions” for a year exceed $250,000 ($300,000 for financial years prior to 1 July 2017).

“Income” for this purpose is primarily based on your client’s taxable income with a few modifications. 

So which lump sums are included in “income” for Division 293 purposes?

Your client’s lump sum will be included for Div 293 purposes if your client is receiving the lump sum because they are drawing down on their own superannuation benefits and:

• they are at least age 60 – in which case the amount which is included is the amount (if any) of their untaxed element
• they are at least their preservation age but not yet 60 – in which case the amount which is included is the amount (if any) of the taxed element which exceeds the low rate cap ($205,000 in the 2018/19 year) plus the amount of any untaxed element
• they are under their preservation age – in which case all of the taxed and untaxed elements are included
• they have received the payment in breach of the payment rules (eg because they weren’t yet eligible to draw on their benefits in lump sum form) - in which case all of the payment is included including any tax free component

Your client’s lump sum will also be included for Div 293 purposes if the lump sum they receive is a death benefit paid directly from a superannuation fund and they are a non-dependant beneficiary – in which case all of the taxed and untaxed elements are included.

Interestingly, if your client had received the death benefit via the deceased’s estate, then it would not have been included in their taxable income (the estate will be liable for any tax) and therefore not included for Div 293 purposes. 

To stay up to date with industry changes sign up for one of our upcoming Education webinars or SMSF Clinics. Follow this link to learn more.