Division 293 tax is an additional tax on concessional super contributions for “high income earners”, but the threshold isn’t so “high” and many taxpayers are caught by surprise when they receive the extra tax bill.

This article explains what Division 293 tax is, who it applies to and how it can be dealt with, so you can be prepared.

What is Division 293 Tax?

The rate of tax paid by superfunds on income (including concessions contributions received by the fund) is 15%.  This is a concessional rate, which is significantly lower than the corporate tax rate and most individual marginal rates.  The concessional rate was intended to incentivise Australians to contribute towards self-funded retirement by making it more attractive to invest in superannuation.

However, in 2013, the Division 293 legislation was introduced to effectively reduce the concession for high income earners by increasing the rate of tax paid on concessional contributions. Rather than changing the superfund tax rate, this was effected by charging the an additional tax on contributions to the member directly.

Division 293 tax is an additional tax of up to 15% on non-excess concessional super contributions and is payable by individuals deemed to be high income earners.

Who has to pay Division 293 tax?

Division 293 tax applies only to those whose “Division 293 income” plus “Division 293 super contributions” exceeds $250,000 (previously $300,000).

Division 293 income is your taxable income, plus reportable fringe benefits, plus total net investment losses.

Division 293 super contributions are your concessional superannuation contributions (ie. pre-tax contributions), up to the concessional contributions cap (currently $25,000).

The ATO will work out if you need to pay Division 293 tax based on the information in your tax return and data they receive from your super fund(s).

Individuals who are not generally high-income earners may still be liable for Division 293 tax if they receive certain one-off payments during a year which push their income in that particular year over the threshold (eg. eligible termination payments and capital gains).

Example
Mark has earned the following income in the 2018-19 financial year:
Salary	235,000
Interest	10,000
Rental profit/(loss)	(30,000)
Less: Deductions	(5,000)
Taxable Income	210,000
Reportable fringe benefits	5,000	This is not income, but is reported in Mark’s tax return.
Super contributions by employer	20,000	This is not income, but has been contributed to Mark’s superfund and reported by his superfund to the ATO.
Mark’s Division 293 income	245,000	Taxable income (210,000), plus net investment loss (30,000), plus reportable fringe benefits (5,000)
Mark’s Division 293 super contributions	20,000
Total	265,000
Mark’s “Division 293 income” plus “Division 293 super contributions” exceeds $250,000 so he will be liable for Division 293 tax.

How is the Division 293 tax amount calculated?

Division 293 Tax is calculated as 15% of the lesser of:

• Your non-excess concessional contributions amount; and
• The excess over the threshold.

Example
Continuing on from the example above:
Mark’s Division 293 income	245,000
Mark’s Division 293 super contributions	20,000
Total	265,000
Division 293 Threshold	250,000
Excess over threshold	15,000
Mark’s “Division 293 income” plus “Division 293 super contributions” exceeds the threshold by $15,000. As this is less than his total contributions of $20,000, he is liable for Division 293 tax on $15,000.
Taxable super contributions	15,000
Division 293 Tax	2,250	$15,000 x 15%
Mark has now paid $5,250 of tax on his $20,000 super contributions. (15% of $20,000 paid by his superfund + 15% of $15,000 paid in Div 293 tax).  This is an effective tax rate of 26.25%.

If liable for Division 293 tax, the ATO will issue you with a notice of assessment stating the amount of tax payable.

It can sometimes take a year or more after the end of the financial year in which the contributions were made for the ATO to issue the assessment.  This is because the ATO needs to collect the relevant information from your personal tax return as well as from your superfund(s).

Options for paying a Division 293 tax bill

The Division 293 tax must be paid within 21 days of receiving the Division 293 Notice.

As mentioned above, Division 293 tax is a personal tax, however individuals may elect to release funds from superannuation to pay the tax.

You can pay your Division 293 tax liability:

• Out of your own money;
• From your superannuation fund (ie. elect for your superfund to release the funds to pay the tax); or
• A combination of these options.

If you choose to pay the tax from your own funds, payment details are provided on the notice.

If you choose to access funds from your accrued superannuation entitlements:

• You must complete a release authority form and submit it to the ATO within 60 days of the issue date of the Division 293 notice of assessment.
• The ATO will write to your superfund instructing them to pay the amount indicated on the release authority form to the ATO.
• Your superfund must pay the funds directly to the ATO within 20 business days of the issue date of the release authority which they receive from the ATO. The fund must also send a release authority statement to the ATO confirming the amount released.

If you’re not sure whether Division 293 tax will apply to your super contributions, we can assist you to apply the legislation to your circumstances.  Contact us to find out more.