What is Division 293 Tax?

Division 293 tax is a targeted levy introduced to create a fairer balance in Australia's superannuation system. It ensures that high-income earners — those whose combined income and super contributions exceed a set threshold — don't enjoy disproportionate tax benefits compared to other Australians. Applying an additional 15% tax on certain super contributions levels the playing field, making the superannuation system more equitable.

Understanding the Division 293 tax can feel complex, especially with its calculations, thresholds and specific rules. Whether you're a high-income earner, a business owner or someone navigating a one-off tax liability, Wilson Porter specialises in breaking down tax systems and providing actionable strategies. Let's explore how Division 293 tax works, its implications and how to manage it effectively.

Division 293 Tax: An overview

Division 293 tax is an additional 15% tax applied to concessional super contributions, such as employer contributions, salary sacrifice contributions and notional contributions for defined benefit members.

The tax is triggered when combined income — including taxable income, reportable fringe benefits and net rental or investment income — plus concessional contributions exceeds the $250,000 threshold. For high-income earners, this means that the effective tax rate on concessional contributions increases from 15-30%, significantly reducing the tax benefits of these contributions.

The calculation is straightforward:

• Add your taxable income, fringe benefits and other relevant amounts from your income tax return.
• Include your concessional super contributions.
• If the total exceeds $250,000, the taxable portion is the lesser of your concessional contributions or the amount exceeding $250,000.
• Apply the additional 15% tax to the taxable portion.

For example, let's say an individual earns $300,000 and receives $27,500 in employer super contributions. Their combined income is $327,500, exceeding the threshold by $77,500. Since the concessional contributions are less, the additional tax is applied to $27,500. At a 15% rate, the Division 293 tax owed is $4,125.

This tax doesn't just impact those with consistently high incomes. One-off events, such as a significant bonus, capital gains or redundancy payments, can push your income above the threshold for a single financial year, resulting in a Division 293 tax liability. It's important to plan ahead to avoid surprises.

Implications of Division 293 Tax on high-income earners

For high-income earners, Division 293 tax increases the overall tax liability on concessional contributions, reducing the financial advantage of using super as a tax-efficient savings vehicle. While concessional contributions remain valuable, the effective tax rate of 30% narrows the gap in tax benefits compared to average income earners.

However, the Division 293 tax ensures fairness in the system. Without it, high-income earners — those with marginal tax rates as high as 45% — would enjoy disproportionate benefits compared to those in lower tax brackets. By adding the additional 15% tax, the system balances these concessions across income levels.

Not just individuals need to consider the implications of this tax — business owners must also be mindful. Salary packaging arrangements, such as salary sacrifice contributions, can inadvertently push an employee's income above the threshold, triggering Division 293 tax. Employers offering defined benefit schemes for senior executives need to ensure compliance with Division 293 rules while planning for potential liabilities.

Wilson Porter offers expertise in superannuation strategies to help businesses stay compliant and manage these obligations effectively.

How the ATO calculates Division 293 Tax

The Australian Taxation Office (ATO) uses a simple step-by-step process to calculate Division 293 tax. The components of this income calculation are:

• Taxable income (assessable income minus allowable deductions).
• Total reportable fringe benefits amount.
• 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.

Next, concessional contributions — such as employer contributions, salary sacrifice contributions and defined benefit notional contributions — are added to this income. If the combined amount exceeds the $250,000 threshold, the ATO identifies the taxable portion as the lesser of:

• Your total concessional contributions.
• The amount exceeding $250,000.

Finally, the additional 15% tax rate is applied to the taxable portion, resulting in the Division 293 tax liability.

Let's revisit our earlier example. An individual with $300,000 in income and $27,500 in employer contributions exceeds the threshold by $77,500. Since the taxable portion is capped at $27,500, the tax owed is $27,500 × 15%, or $4,125. The ATO will issue an assessment notice detailing the amount owed and the payment deadline.

Please note in the above examples we have used the concessional contribution limit applicable to 30 June, 2024. From 1 July, 2024 the concessional contribution limit was raised to $30,000.

What to do if you owe Division 293 Tax

If you owe Division 293 tax, the ATO will issue an assessment notice after the end of the financial year. The notice outlines the amount owed, which must be paid within 21 days. Payment options include:

Using personal funds to settle the liability.
Submitting a release authority form to access funds from your super account. This must be provided to your super fund within 60 days of receiving the notice.

For individuals in defined benefit schemes, payments may be deferred until employment ceases and a superannuation benefit becomes payable. Voluntary payments can also be made earlier to reduce the debt and avoid interest accruing on the deferred liability. Understanding these options can make a significant difference in managing your financial obligations efficiently.

Navigating division 293 tax

Division 293 tax plays a vital role in ensuring equity within Australia's superannuation system. While it imposes an additional tax burden on high-income earners, it helps create a fairer balance of tax benefits across income levels. For individuals and businesses alike, understanding the mechanics of Division 293 tax and planning proactively can help mitigate its impact.

Whether you're an individual navigating a sudden Division 293 tax liability or a business looking to structure salary packaging effectively, Wilson Porter's expertise can guide you through these challenges. By offering tailored solutions for complex tax matters, we ensure that you remain compliant while minimising unnecessary costs.

Learn more about our taxation services and how we can assist with Division 293 tax planning today.