Understanding the Division 293 Tax

Australia’s superannuation system offers generous tax concessions to encourage people to save for retirement. Typically, concessional (before-tax) superannuation contributions , like employer Super Guarantee payments and salary-sacrificed contributions , are taxed at a concessional rate of 15%. However, for high-income earners, an additional tax known as the Division 293 tax applies. This tax was introduced to make the superannuation system fairer by reducing the tax advantage that wealthier individuals receive.

Division 293 tax applies when an individual’s combined income and concessional super contributions exceed a certain threshold. Essentially, it ensures that those with higher earnings pay more tax on their super contributions, aligning their effective tax rate closer to their marginal income tax rate.

How Division 293 Tax Works

Division 293 tax is not a separate contribution made to your superannuation account. Instead, it is an extra personal tax liability assessed by the Australian Taxation Office (ATO). If you are liable, the ATO will send you an assessment notice detailing how much you owe.

The tax applies to the lesser of:

• The amount of your taxable super contributions; or
• The amount by which your combined income and taxable super contributions exceed the Division 293 threshold.

The rate of Division 293 tax is an additional 15%, meaning eligible concessional contributions are effectively taxed at 30% rather than 15%.

The Income Threshold for Division 293 Tax

The income threshold for Division 293 tax is currently $250,000 per year. It’s important to understand that “income” for Division 293 purposes is broader than your taxable income. It includes:

• Taxable income (including investment income and net business income)
• Reportable fringe benefits
• Net financial investment losses
• Net rental property losses
• Reportable super contributions
• Some other components such as exempt foreign employment income

According to SuperGuide, this broad definition can push individuals who might not otherwise consider themselves “high income” into the Division 293 tax net, especially if they have significant investment or rental income.

Example of Division 293 Tax in Action

Consider Jane, who earns a taxable income of $230,000. She also makes salary-sacrificed super contributions of $25,000.

• Combined income = $230,000 + $25,000 = $255,000
• Amount above the $250,000 threshold = $5,000

The Division 293 tax will apply to the lesser of:

• Jane’s concessional contributions ($25,000); or
• The excess amount over the threshold ($5,000)

Thus, Jane will pay an additional 15% tax on $5,000, resulting in an extra tax bill of $750.

Payment Options for Division 293 Tax

When assessed for Division 293 tax, you can choose to pay the amount directly or release money from your super fund to cover the liability. As MLC explains, using a release authority form from the ATO allows your super fund to make the payment directly to the ATO.

Alternatively, you may opt to pay the Division 293 tax from your own funds.

Timing of the Assessment

The ATO issues the Division 293 tax assessment after receiving information from your income tax return and your super fund. This means the assessment often arrives well after the end of the financial year. In some cases, you may receive multiple assessments for the same financial year, especially if you have concessional contributions split across different funds.

It’s important to monitor your contributions and taxable income during the financial year to anticipate whether you might be liable, helping you manage your cash flow and tax planning proactively.

Strategies to Minimise Division 293 Tax

While it is not possible to completely avoid Division 293 tax if your income exceeds the threshold, there are strategies to manage and potentially reduce its impact.

1. Salary Packaging Carefully

Since concessional contributions count toward the Division 293 income test, limiting additional salary-sacrificed contributions could help you stay below the threshold.

2. Using Non-Concessional Contributions

After-tax contributions (non-concessional contributions) are not subject to Division 293 tax. If you want to boost your super without triggering additional tax, non-concessional contributions are an option to consider.

3. Deferring Income

In some situations, it may be possible to defer income (such as bonuses) to a future year when your income is expected to be lower. This strategy requires careful planning and professional advice.

4. Managing Investment Income

If investment income or capital gains are pushing you over the Division 293 threshold, consider strategies to manage these gains, such as offsetting them with losses or timing asset sales carefully.

Common Misconceptions About Division 293 Tax

It Only Applies to the Super-Rich

Many people believe Division 293 tax only targets the ultra-wealthy. However, professionals such as doctors, executives, IT specialists, and business owners can easily find themselves exceeding the $250,000 threshold, especially when including investment and rental income.

It Applies to All Contributions

Division 293 tax applies only to concessional (before-tax) contributions, not non-concessional (after-tax) contributions.

It Doubles the Tax on Super Contributions

It does not “double” the tax on concessional contributions. Instead, it increases the effective tax rate on affected contributions from 15% to 30%, which is still lower than the top marginal income tax rate.

Key Takeaways

Division 293 tax plays a significant role in ensuring fairness in Australia’s superannuation system. For individuals with higher incomes, understanding how it operates is critical for effective financial planning. According to Witten Partners, by being proactive , managing income streams, considering the timing and type of super contributions, and seeking professional advice , you can minimise its impact and make informed decisions about your retirement savings.

Even though Division 293 tax adds complexity, the benefits of contributing to superannuation, such as tax-effective savings for retirement, remain valuable. As Wilson Porter highlights, staying informed and planning ahead ensures you maximise your super contributions while avoiding unexpected tax surprises.