Financial Planners and Investment Advisers Sydney North Shore  1300 623 936 rob@mcinvest.com.au

Prior to 1 July 2012, everybody – regardless of their income – paid 15% tax on their before-tax (or concessional) super contributions. This resulted in the very high-income earners receiving a much greater tax concession than the average income earner.

A person on the highest marginal tax rate of 45% paying 15% tax on their before-tax super contributions, was effectively receiving a concession of 30%. The new tax meant that people earning at least $300,000 were now taxed at 30% on these super contributions, reducing their tax concession to 15%. Essentially, Division 293 tax brings the concession available to very high-income earners back to an amount in line with the average.

The income threshold was reduced from $300,000 to $250,000 from the 2017-2018 financial year.

Who pays Division 293 tax?

Division 293 tax applies if your Division 293 income, together with your Division 293 super contributions, are greater than $250,000.

To determine your Division 293 income, the ATO applies a calculation very similar to the one it uses for determining your Medicare levy surcharge.

For accumulation members Division 293 super contributions are your super contributions made before tax. For most individuals this will be employer contributions, salary sacrifice contributions and deductible personal contributions. It excludes after-tax (or non-concessional) contributions.

If you are a defined benefit member, your Division 293 super contributions will be the total of any concessional contributions (by your employer or salary sacrifice) to an accumulation account, plus your defined benefit contributions (calculated in accordance with a formula specified by the government).

Note than concessional contributions in excess of the $25,000 cap will be taxed at your marginal tax rate and Division 293 does not apply.

The ATO uses information collected from your tax return, and contribution information reported by your super fund to calculate your Division 293 tax liability.

Once the ATO receives your income return and your contribution information, the ATO will send you a notice of assessment. This will tell you how much Division 293 you owe. If you don’t pay by the due date you will accrue interest.

How is Division 293 tax calculated?

Scenario 1 – No additional tax is payable 

If the total of your Division 293 income and Division 293 super contributions are less than $250,000 a year, Division 293 tax does not apply and your super contributions will be taxed at the usual rate of 15%.

Scenario 1 example

In the 2019-2020 financial year, Lilly earned $210,000. Lilly’s employer paid compulsory super contributions of $19,950. Lilly salary sacrificed $5,050 in order to maximise her concessional (before-tax) contributions up to the $25,000 annual cap. Lilly earned no other income in the financial year, so her total income for Division 293 purposes is $235,000, which is under the $250,000 threshold.

Division 293 tax does not apply and Lilly’s entire contribution amount of $25,000 is taxed at 15%.

Scenario 2 – Addition of super contributions takes income above threshold

If your income is less than $250,000 a year, but by including your before-tax contributions the total income is more than $250,000, the 30% tax rate will apply to the part of your before-tax contributions that take your income above the $250,000 threshold.

Scenario 2 example

Let’s now assume that, in addition to her salary of $210,000, Lilly earned $20,000 in bank interest and investment income.

This takes her total income to $230,000, which is below the $250,000 threshold.

Her total concessional contributions remain at $25,000 which, when combined with her income, takes her above the $250,000 threshold.

 

Division 293 income ($210,000 + $20,000) $230,000 (a)
Division 293 super contributions $25,000 (b)
Combined income and contributions $255,000 (c)
Less the Division 293 threshold $250,000 (d)
Amount above the threshold $5,000 (e)
Taxable super contributions (the lesser of (b) or (e)) $5,000 (f)
ADDITIONAL TAX  (f) x 15% $750  

Scenario 3 – Income alone exceeds $250,000

If you’re a high-income earner with an income of more than $250,000 a year, the total tax on your before-tax contributions is 30%.

Scenario 3 example

Finally, let’s assume that Lilly earns a salary of $245,000, interest and investment income of $20,000, and total super contributions of $25,000.

This takes her total income to $265,000, which is above the $250,000 threshold.

 

Division 293 income ($245,000 + $20,000) $265,000 (a)
Division 293 super contributions $25,000 (b)
Combined income and contributions $290,000 (c)
Less the Division 293 threshold $250,000 (d)
Amount above the threshold $40,000 (e)
Taxable super contributions (the lesser of (b) or (e)) $25,000 (f)
ADDITIONAL TAX  (f) x 15% $3,750  

Options for paying Division 293 tax

There are two options for paying your Division 293 tax. You can pay either:

  • With your own personal money – using BPAY or a credit/debit card, as you would make a payment for any other creditor, or
  • By releasing money from super.

Releasing money from super

Essentially, there is three ways for making your election to release money from your super to pay your Division 293 tax.

The quickest and easiest way is to complete an election form online. You can do this via myGov, provided you have linked your myGov account to the ATO online services.

If you can’t complete your election online, you can complete a paper election form, which can be downloaded here.

Alternatively, if you use a tax agent to complete your income tax return, they may be able to complete your Division 293 election for you using their online services for agents.

Once the ATO receives the election form from you, they send your super fund a release authority for the amount specified by you. The money is used to pay your Division 293 liability. Once you make an election, it’s final and can’t be reversed.

Division 293 for defined benefit members

Paying Division 293 tax works a little differently for people who are members of a defined benefit fund. The reason for this is that money generally can’t be released from a defined benefit account until a super benefit is paid. This is usually upon retirement.

For defined benefit members, the tax payment is generally deferred and included in a debt account maintained by the ATO. Interest will be added to this account balance annually, at the long-term bond rate. However, if the outstanding balance on your debt account is paid before the end of the financial year, no interest applies to that financial year.

If you’re a defined benefit member, you can elect to pay your Division 293 tax voluntarily from your own personal (non-super) money or from any accumulation accounts you have in your super fund. By voluntarily paying your Division 293 liability by its due date, you’ll avoid accruing interest.

Most defined benefit funds are not able to release amounts for you, but you should double check this with your super fund before making your decision to either defer payment or pay upfront from your own money.

Are there any exemptions?

There are very few exemptions from Division 293. If you’re a ‘state higher level office holder’ who makes certain contributions to a constitutionally protected fund, you’re exempt from paying Division 293 tax on those contributions. State higher level office holders includes:

  • Minister of the government of a state
  • Member of the parliament of a state
  • Governor of a state
  • Head of a department of the public service of a state

Commonwealth judges are also exempt where they make super contributions to a super fund established under the Judges’ Pensions Act 1968.

For more information on Division 293 tax, visit the ATO’s website.

This article provides an overview of how the Division 293 tax works. It doesn’t provide a detailed explanation of all aspects of the tax, and we recommend that you obtain advice tailored to your personal circumstances before making concessional contributions to your super. A registered tax adviser can explain how the tax may apply to you.

How can we help?
If you’d like to know more, please call us on 1300 623 936 to arrange a time to meet and we can discuss your particular requirements in more detail.

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