If you’re a high-income earner contributing to superannuation, you may find yourself hit with an additional Division 293 tax. Designed to reduce tax concessions for high earners, Division 293 adds an extra 15% tax on concessional super contributions for individuals earning over $250,000.

While it might come as an unwelcome surprise, it’s important to understand why it applies, how it’s calculated, and what options you have for paying it.

who does division 293 tax apply to?

Division 293 tax applies to individuals whose adjusted taxable income exceeds $250,000. This figure includes:

• Taxable income from your tax return
• Reportable fringe benefits
• Rental property losses (added back)
• Capital gains (even from one-off events like selling shares or an investment property)
• Concessional super contributions (deducted from taxable income but added back for Division 293 calculations).

Prior to 2017, the threshold for this tax was $300,000, but it was reduced to $250,000 and hasn’t been indexed since. As incomes rise, more Australians will find themselves caught by Division 293 tax.

how is division 293 tax calculated?

The tax office assesses Division 293 tax after you lodge your tax return, as they need your full income details. There are two main ways it’s calculated:

• The excess over $250,000: if your adjusted taxable income is $260,000, you’re $10,000 over the threshold. You’ll pay 15% tax on that $10,000, equating to $1,500 in additional tax
• Your concessional super contributions: if your income exceeds $250,000, any concessional (pre-tax) contributions – including those from your employer – are taxed at an additional 15%. This brings the total tax on these contributions to 30% (instead of the standard 15%.

what happens if you make extra super contributions?

Since 2019, the government has allowed individuals to carry forward unused concessional caps from previous years and make a larger contribution in a single year. The current concessional cap is $27,500, but if you haven’t used this limit in past years, you can contribute more in a lump sum.

• Example: If you contribute an extra $70,000 using your unused cap, that full amount will be taxed an additional 15% under Division 293 – resulting in a $10,500 tax bill.

While it’s beneficial to increase super savings and claim a tax deduction, you need to factor in this extra tax cost when making large contributions.

how do you pay division 293 tax?

Once the ATO assesses your Division 293 tax, you’ll receive a notice outlining the amount owed. You have two payment options:

• Pay from your personal funds – you can pay the tax bill directly, just like any other tax obligation
• Pay from your super fund – you can request that the amount be withdrawn from your super balance.

There are pros and cons to each option, depending on your cash flow, long-term super strategy, and financial goals. Seeking professional advice can help you determine the best approach.

final thoughts

Division 293 tax is here to stay, and as income levels rise, more people will find themselves affected. If you earn over $250,000, expect to receive a Division 293 tax notice each year.

Before making additional super contributions, it’s worth seeking advice to understand the tax implications and ensure your strategy aligns with your overall financial plan. While superannuation remains a powerful wealth-building tool, knowing the costs upfront can help you make informed decisions.

For further information or to book a complimentary meeting, please phone 03 9863 311, visit bongiorno.com.au or email enquiry@bongiorno.com.au

-oOo-

Ricky Caldow

director | BCom (Acc/FinPlan), Cert.IV FMB, GAICD

chantelle turner |CA, BCom | tax manager

As this general advice has been prepared without taking account of your objectives, financial situation or needs, you should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product Disclosure Statement before deciding to acquire the product.