A simple guide to the Division 293 tax
Superannuation contributions are normally taxed very lightly.
Your concessional contributions - which are the contributions paid before tax, including employer contributions, salary-sacrificed amounts and additional personal contributions - are taxed at a rate of only 15% up to the concessional contributions cap (currently $30,000).
But this favourable tax treatment doesn't extend to so-called high-income individuals.
They are subject to a special tax called Division 293 tax.
This is charged at an additional 15% of your concessional contributions, giving a total tax rate of 30%.
The tax applies to any individuals whose combined income and concessional contributions for Division 293 purposes is more than $250,000.
The additional tax has been around for many years and the $250,000 threshold has never been indexed or otherwise increased (in fact, it was decreased from $300,000 in 2017), which means that over the years, more and more taxpayers have been being caught in the net of Division 293.
The ATO will work out if you need to pay Division 293 tax based on information in your tax return and data they receive from your super fund(s).
They will issue you with a notice of assessment stating the amount of tax payable. You can pay it in one of two ways:
- You can provide an authority to your super fund to enable them to release the money to pay the additional tax or
- You can pay the tax from your non-super savings.
Good to know: Where your income excluding your concessional contributions is less than the $250,000 threshold, but your concessional contributions push you over the limit, the extra 15% tax is only applied to the concessional contributions exceeding the threshold.
Example: Jan's Division 293 income is $240,000 and Division 293 super contributions are $15,000. This is a total of $255,000. Division 293 taxable contributions are the lesser of Division 293 super contributions ($15,000) or the amount above the $250,000 threshold ($5000). Jan's Division 293 tax payable is 15% of $5000, so the Division 293 tax payable is $750.
If your income consisting of the following components exceeds $250,000, you could be liable to Division 293 tax:
- Taxable income (assessable income minus allowable deductions)
- Total reportable fringe benefits amounts
- Net financial investment loss
- Net rental property loss
- Net amount on which family trust distribution tax has been paid
- Super lump sum taxed elements with a zero tax rate
- Assessable first home super saver released amount.
These amounts are added up (except the super lump sum and assessable first home super saver released amount, which are subtracted) to give the income amount. So, as you can see your income for Division 293 purposes is not simply your taxable income.
Even though you may not normally have an income greater than the Division 293 threshold, certain events can cause your income to reach this level in a particular year. So, Division 293 might apply to you for only one year if, for example:
- You lose your job and receive an eligible termination payment
- You make a capital gain
- Your income increases for another reason.
For this reason, Division 293 tax often comes as a shock to many individuals.
If you choose to pay the Division 293 tax liability by releasing money from your super, you must complete an election form. You have up to 60 days from the date of your Division 293 assessment to make your election.
When the ATO receives a valid election form, they send the affected individual's nominated super fund(s) a release authority to pay the amount specified. The money is used to pay the outstanding Division 293 liability.
A decision to make an election cannot be withdrawn or reversed.
Get stories like this in our newsletters.
