Division 293 Tax

Division 293 tax is an extra superannuation tax imposed on taxpayers who earn more than $250,000 including superannation annually. Without division 293 tax, higher income earners receive a comparatively greater benefit from superannuation than lower income earners.

Superannuation is taxed at a flat rate of 15%. Taxpayers earning more than $250,000 pay 47% tax on their extra income. Most taxpayers have a marginal tax rate of around 32%. There is a greater benefit to taxpayers earning $250,000+ in receiving super instead of salary, as they are comparatively avoiding more income tax than lower income earners. Hence, division 293 tax attempts to equalise the tax benefits of super between lower and higher income earners.

How to calculate tax under division 293

If your annual adjusted taxable income, combined with your Division 293 super contributions, reaches or surpasses $250,000, you will be liable to pay Division 293 tax. This tax is calculated at a fixed rate of 15% and applies to the lower of two amounts:

• the concessional contributions received by your superannuation fund during the financial year or
• the excess concessional contributions that exceed the $250,000 threshold.The primary aim of this tax is to address the disparity in tax advantages enjoyed by high-income earners in relation to their super contributions, ensuring a more equitable taxation system overall.

Example 1

• Adjusted Taxable Income: $320,000
• Concessional Contributions: $30,000
• Division 293 Threshold: $250,000

Calculation: As the sum of Adjusted Taxable Income and Concessional Contributions ($350,000) is over the Division 293 threshold of $250,000, the tax is calculated on the full amount of Concessional Contributions.

Tax: $30,000 * 15% = $4,500

Example 2

• Adjusted Taxable Income: $210,000
• Concessional Contributions: $25,000
• Division 293 Threshold: $250,000

Calculation: Since the sum of Adjusted Taxable Income and Concessional Contributions ($235,000) is below the Division 293 threshold of $250,000, no tax is applicable.

Tax: $0

Example 3

• Adjusted Taxable Income: $240,000
• Concessional Contributions: $45,000
• Division 293 Threshold: $250,000

Calculation: Since the sum of Adjusted Taxable Income and Concessional Contributions ($285,000) is over the Division 293 threshold of $250,000, the tax is calculated on the lower of either the amount over the threshold or the total contributions, which is $35,000.

Tax: $35,000 * 15% = $5,250

Division 293 income

Here’s a breakdown of what constitutes income for Division 293 tax purposes:

• Taxable income: This refers to the income on which you are obligated to pay taxes. It includes your assessable income, which encompasses various sources of earnings, reduced by any eligible deductions you can claim.
• Total reportable fringe benefits: If you receive fringe benefits as part of your employment, they are considered when determining your income for Division 293 Tax. These benefits, such as company cars, private health insurance, or housing allowances, are factored into the calculation.
• Net financial investment losses: If you have incurred losses from financial investments like stocks, shares, or rental properties, these losses are considered in assessing your income for Division 293 Tax. They are considered to provide a comprehensive picture of your financial situation.
• Net rental property losses: If you own rental properties and have experienced losses from those properties, those losses are also included in determining your income for tax purposes. It ensures that any negative impact from rental investments is considered.
• Amounts on which family trust distribution tax has been paid: If you have received distributions from a family trust and tax has already been paid on those distributions, these amounts are not included in your income for Division 293 Tax purposes. It prevents double taxation and ensures fair treatment of distributed income.

If you have received lump sum super benefits that have already been taxed at a rate of zero, they will not be considered part of your income for Division 293 Tax.

What are concessional contributions?

• Employer contributions: These are the contributions made by your employer to your accumulation fund as part of your employment benefits.
• Salary sacrifice contributions: These are voluntary contributions you make, where you choose to sacrifice a portion of your salary and divert it into your superannuation fund.
• Notional employer contributions: These contributions are specific to defined benefit funds, where an employer makes contributions on behalf of employees based on a predetermined formula.

Additional points to consider

1. If your income, excluding the contributions you make to your super fund, is below the $250,000 threshold, but your contributions push your total income over the threshold, you will only pay Division 293 tax on the excess contributions. This means that you’ll be taxed only on the portion of contributions that goes beyond the threshold amount.

2. The ATO calculates Division 293 tax yearly. This means that your liability for this tax can vary from year to year. For instance, you may be subject to this tax in certain years, while in others, you may not have any tax liability under this provision. This could occur, for example, if you experience a substantial capital gain or salary bonus in one particular year, leading to a higher income that triggers Division 293 tax.

3. A Division 293 tax assessment for an income year is issued after the income tax assessment. This is because it is a separate tax from income tax, and Division 293 tax is based on the income tax return assessment.