Saving for retirement through superannuation is a smart and tax-efficient approach for many high-income individuals. However, there are limits to consider. As your income increases, you may incur extra tax on your concessional (before-tax) super contributions.
Division 293 Explained
Division 293 tax rules come into play when your income and concessional contributions surpass $250,000 in a financial year. In such cases, you might be subject to an additional 15% tax on some or all of your super contributions, on top of the standard 15% contributions tax.
It’s important to note that if your income, excluding concessional contributions, remains below the $250,000 threshold but your concessional contributions push you over, the extra 15% tax applies only to the contributions exceeding the threshold. It also applies due to one-off events, such as capital gains or bonuses.
Example – Jane
| Salary | $225,000 |
| Super concessional contributions | 23,625 |
| Interest Earned | 10,000 |
| Total | 258,625 |
Division 293 tax is payable on the lesser of the super contributions or the amount above the $250,000 threshold:
- Amount above the $250,000 threshold: $258,625 – $250,000 = $8,625
- Super Contributions: $23,625
In this case, the Division 293 tax payable is $1,293.75, being 15% of $8,625.
The Threshold and Indexation
Since July 1, 2017, the threshold for Division 293 tax has stood at $250,000 annually, down from $300,000 in previous years. This adjustment aimed to optimise the targeting of tax concessions within the super system for sustainability and fairness. The threshold has not been indexed since 2017, potentially resulting in more individuals being subject to this tax as incomes rise over time.
Due to current levels of inflation, the threshold is set to increase from 1 July 2024. Please note this is still to be confirmed which is likely to happen in March.
Calculation and Payment of Division 293 Tax
Calculating any Division 293 tax is done by the ATO after you lodge your income tax return. It combines the information from your return with data from the member contribution statements it receives from super funds (or the annual return from your SMSF).
If you are required to pay any tax, you will receive an assessment notice from the ATO or a notice in your myGov inbox if you lodged your tax return using myTax. You can choose to pay with your own money, or by electing to use your existing super account balance via myGov.
Find further information on the ATO website.
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Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2024. Please do not reproduce without the expressed written consent of the author.