Division 293 tax seems to catch a lot of people out because majority of people don’t know what it is until they get an unexpected tax bill at the end of the year.
Also, it doesn’t get factored in to PAYG payments so if you’re an employee, your employer is not going to account for it when they make tax instalments throughout the year.
What is Division 293 tax?
Division 293 tax is an additional 15% tax on concessional super contributions if your income exceeds the Division 293 tax threshold. Only the contributions in excess of the threshold will incur the additional tax.
In the current 2022/23 financial year, the threshold is $250,000 however there is talk at the moment of the Labor government potentially reducing it to $200,000.
It is a combination of your Division 293 income plus the Division 293 super contributions that make up the threshold.
Division 293 income
The components which make up the Division 293 income include the addition of any:
- taxable income (assessable income minus allowable deductions)
- total reportable fringe benefits amounts
- net financial investment loss
- net rental property loss
- the 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.
Where a lot of people tend to get caught out is the ad hoc years where your income exceeds the limit due to a one-off event such as a capital gain, bonus, or termination payment.
Division 293 super contributions
Division 293 super contributions include your concessional contributions minus any excess concessional contributions. The concessional contributions counted for Division 293 tax purposes generally include:
- employer contributed amounts (inc. SGC, salary sacrifice, employer additional)
- other family and friend contributions
- assessable foreign fund amounts
- assessable amounts transferred from reserves
- personal contributions for which you have been allowed a deduction
- defined benefit contributions.
If the sum of Division 293 income + Division 293 super contributions is greater than the Division 293 threshold, Division 293 Tax will apply. Taxable contributions are the lesser of the Division 293 super contributions and the amount in excess of the threshold.
Example: Partial Division 293 Tax
Jane earns $230,000 and her employer SGC entitlement is $24,150. She also has a family trust which distributes her investment income of $10,000. Start by calculating Jane’s Division 293 income and Division 293 super contributions:
- Janes Division 293 Income = $230,000 + $10,000 = $240,000
- Janes Division 293 super contributions = $24,150
A + B = $264,150. She has exceeded the Division 293 threshold by $14,150 ($264,150 – $250,000).
The taxable contribution is the lesser of the Division 293 super contributions ($24,150) and the amount in excess of the threshold ($14,150). In this instance the taxable contribution is the excess of $14,150.
Jane would be required to pay Division 293 tax of $2,122.50 ($14,150 x 15%).
Example: Full Division 293 Tax
Now let’s assume that Jane’s income remains the same but she has a larger than profit distribution from the family trust of $100,000.
- Janes Division 293 Income = $230,000 + $100,000 = $330,000
- Janes Division 293 super contributions = $24,150
A + B = $354,150. She has exceeded the Division 293 threshold by $104,150 ($354,150 – $250,000).
The taxable contribution is the lesser of the Division 293 super contributions ($24,150) and the amount in excess of the threshold ($104,150). In this instance the taxable contribution is the Division 293 super contribution of $24,150.
Jane would be required to pay Division 293 tax of $3,622.50 ($24,150 x 15%).
Funding the tax
If you are subject to Division 293 tax, you can choose to fund the tax bill with your own money or by electing to have the money released from super.
To make a release request you must use an election form, which is then lodged with the ATO. You have up to 60 days from the date of your Division 293 assessment to make your election.
Personally, where possible, I prefer to fund any Division 293 tax from savings outside super. Superannuation is a very tax effective environment to save for the long term so I don’t recommend touching it early unless absolutely necessary.
Are salary sacrifice and/or personal deductible contributions still viable when Division 293 tax applies?
The short answer is yes.
Even though your contributions will attract the additional 15% tax (taking the total tax payable on contributions to 30%) this is still less than your marginal tax rate at that level of income.
In the current 2022/23 financial year, if your taxable income is over $180,000, your marginal tax rate is 47% inclusive of medicare levy. By putting extra money into superannuation where it will be taxed at 30%, you are still saving 17% tax when compared to having it taxed at your marginal rate.
Before putting any additional money into superannuation just make sure you understand the eligibility criteria and consequences of doing so.
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