Division 293 Tax: A Must Know for High Income Earners
1. What Is Division 293 Tax?
Division 293 is an extra 15% tax on concessional (pre-tax) superannuation contributions for individuals whose combined income and concessional contributions exceed $250,000 in a financial year. It was introduced to reduce the superannuation tax concessions high income earners receive.
2. How Does It Work?
First, the ATO calculates your Division 293 income which is your taxable income plus reportable fringe benefits, investment income, rental property losses, trust distributions, and select lump sums.
This sum is then added to your concessional super contributions (e.g., salary sacrifice super contributions and employer contributions).
If the total exceeds $250,000, Division 293 tax applies to the lesser of:
(a) the excess over $250,000, or
(b) your concessional contributions.
3. Why It Matters
For those that receive a Division 293 assessment, concessional contributions are taxed at 30% (15% standard + 15% Division 293) with no Medicare levy applicable. This is still more favourable than the top marginal income tax rate of 47% inclusive of Medicare levy, but significantly less tax benefit than what super offers lower income earners.
4. Who Might Be Caught Off-Guard?
Even if you usually earn under $250,000 per annum, one-off events such as capital gains, bonuses, or redundancy payouts can unintentionally push you above the threshold for that year.
5. How to Manage Your Exposure
Time super contributions: If you anticipate a high-income year, consider delaying large concessional contributions.
Spouse super contributions: Redirecting contributions to a lower income spouse may reduce your own concessional contributions that may be applicable for Division 293 tax.
Non-concessional super contributions: After-tax contributions are not subject to Division 293.
Claim deductions: Entitled deductions like charitable donations or self-education can reduce your taxable income.
6. Payment Options
If you are assessed for Division 293 tax, you can either:
Pay from your bank account, or
Request to release the amount from your super balance (with your fund's consent).
Defined benefit members receive deferred assessment, with a special debt account and interest calculations involved.
7. Is It Still Worth Contributing to Super?
Yes! Despite the additional tax, contributing to super often remains more tax-efficient than keeping money in your take-home pay, especially at high marginal rates.
Bobby Ho B.Com(Fin/Mkt), DFS(FP), GDipPA, CPA, SSA
Senior Financial Adviser
(03) 9650 9762
bobbyh@lanteri.com.au
Ground Floor, 1 Collins Street Melbourne Victoria 3000 Australia