At the time, the government said the lower threshold would “improve sustainability and fairness” in the super system while allowing people to “accumulate significant amounts of tax-advantaged concessional superannuation”.
It was criticised by elements of the personal finance and superannuation sector as an unfair attack on higher-income earners.
But many of those people managed to find a way around the impost.
Breunig and Carter found that when the threshold was cut to $250,000, there was a spike in the number of people declaring an income just under that level.
Women, the self-employed, and those with trust income were all far more likely to have incomes under $250,000.
People with trust income were seven times more likely to have an income under $250,000 than if Division 293 did not exist, and self-employed people were 11 times more likely.
Before the changed threshold was introduced, there was no spike in people just under the $250,000 income level.
Professor Robert Breunig of ANU says people on high incomes using the tax system to avoid tax means other Australians pay more.Credit: Rhett Wyman
“Those who are able to adjust their income readily use that ability to target the Division 293 thresholds,” Breunig and Carter found.
“Those who continue to bunch at the old threshold are those who have lower ability to adjust their income or shift income across years (for example, salary and wage earners).”
When Division 293 was first introduced, the researchers found it took a few years before people started bunching their incomes below the $300,000 mark. When the shift to $250,000 took place, the move by thousands to declare income just below that point was much quicker.
Some critics of the tax system have claimed that high tax rates encourage people to work less hard, to avoid their income being hit by a higher threshold.
But Carter and Breunig found high-income earners managed their tax arrangements in response to thresholds, not by changing their working hours.
“We demonstrate that bunching is driven by tax planning, not by labour supply responses,” they found.
Bunching is relatively common across the personal income tax system, where thresholds change.
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Research headed by Breunig earlier this year, based on 189 million tax records collected between 2000 and 2018, found people using family trusts or declaring themselves as self-employed were up to 50 times more likely to have an income just below a change in thresholds.
The stage 3 tax cuts that begin on July 1 will include changes to thresholds, including the first shift in the top rate of 45 cents that will apply to incomes above $190,000. Since 2008, the top rate has started at $180,000.
Breunig and Carter said that if the goal of Division 293 was to reduce the concessional treatment of superannuation concessions, it would make sense to reduce the gap between the $250,000 threshold and that of the top marginal tax rate.
“This would also move closer to a system where taxpayers, rather than paying a flat tax on superannuation contributions, pay their marginal tax rate less a flat discount,” they said.
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