Question of the month: Understanding Division 293 Tax

We often receive questions from clients who receive Division 293 assessments in relation to their superannuation contributions. So why am I paying 30% on my super contributions when I thought it was 15%?

What is Division 293 Tax?

Division 293 tax is an additional tax payable on concessional super contributions made by individuals whose income is greater than the Division 293 threshold. The Division 293 threshold is $250,000 for the 2022-23 financial year. Your income for Division 293 purposes is broadly your taxable income plus reportable fringe benefits and investment losses (also adding back your deductible superannuation contributions).

Concessional super contributions are contributions made to super that are tax deductible for the individual making the contribution. They include salary sacrifice contributions, personal contributions, and contributions made under the government’s co-contribution scheme.

Division 293 tax is payable on the excess of an individual’s concessional super contributions if the Division 293 threshold is breached. For example, if an individual’s income is $300,000 and they make $27,500 in concessional super contributions, they will be liable for Division 293 tax of $4,125 (i.e. an additional tax of 15% on the contributions).

Division 293 tax is payable when you lodge your tax return. You have the choice of paying the tax personally or choosing for your superannuation fund to pay the tax. If you are unsure whether you are liable for Division 293 tax, you should speak to a tax professional.

Why is Division 293 Tax Payable?

Division 293 tax is payable in Australia to help reduce the tax benefits that high-income earners receive from super. Super is a tax-deferred investment, which means individuals do not pay tax on the contributions they make or the earnings on their super until they withdraw the money in retirement. This can provide high-income earners with a significant tax advantage.

Division 293 tax is designed to reduce this advantage by imposing an additional tax on concessional super contributions made by high-income earners.

Let us know if we can assist you in looking more closely at Division 293 and how it applies to you.

IMPORTANT NOTICE

This blog post contains general information only and has been provided by Allworths without reference to your objectives, financial situation or needs. Allworths cannot guarantee the accuracy, completeness or timeliness of the information contained here. By making this information available to you, we are not providing professional advice or recommendations. Before acting on any of the information contained here, you should seek professional advice.