Division 293 Tax – Taxing Contributions Fairly
Back in 2012, the Government at the time implemented an additional tax on superannuation contributions to bring them back in line to an equitable level. High income earners can receive the largest share of tax incentives, especially when it comes to super contributions as they receive a tax deduction at 45%, the super fund pays tax at 15%, proving them with the net tax saving of 30%. Since this was seen as an inequity, this new tax has been implemented.
The tax itself is an additional 15% tax on the contributions made to super, from employer contributions or those voluntary contributions that have been claimed as a tax deduction (i.e., concessional contributions). This brings the average tax rate for contributions to super to 30%, therefore reducing the net tax saving from 30% down to 15%.
The income threshold originally started at $300,000 from 2013 to 2017 financial years, then reduced to $250,000 from 1 July 2017.
What’s Included in Income?
This tax is only assessed once you lodge an income tax return, as this how the income threshold is calculated. We first start with Taxable Income, then add on the following:
Reportable fringe benefits amounts
Net financial investment losses
Net rental property loss
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.
From here, we then need to work out the Division 293 super contribution amount. This amount equals an individual’s concessional contributions minus any excess concessional contributions (as the excess is ignored).
If the total income amount is above the threshold, then you will automatically have a liability. However, if your income is less than the threshold, you will still need to add on your Division 293 super contribution amount to this total income
Tax Me!
The additional tax is calculated on the lesser of the Division 293 super contributions and the amount more than the threshold.
Example 1:
Tom, after lodging his 2023 income tax return, had $263,000 of taxable income and $27,500 in concessional contributions for the year. As his taxable income is over the threshold, we need to work out what the taxable contributions will be, which is the lesser of:
Division 293 Super Contributions: $27,500
Income and Division 293 super contributions above the threshold: $263,000 + $27,500 = $290,500 - $250,000 = $40,500.
Therefore, the amount of Tom’s taxable contributions for the 2023 financial year is $27,500 because it is the lesser of the two amounts. Tom will pay an additional 15% on the $27,500, being $4,125.
Example 2:
Sally, after lodging her 2023 income tax return, had $215,000 of taxable income which included a net rental property loss of $11,000, and had $27,500 of concessional contributions for the year. To work out what her taxable super contributions amount is, it is the lesser of:
Division 293 super contributions: $27,500
Income and Division 293 super contributions above the threshold: $215,000 + $11,000 + $27,500 = $253,500 - $250,000 = $3,500
Therefore, the amount of Sally’s taxable contributions for the 2023 financial year is $3,500 because it is the lesser of the two amounts. Sally will pay an additional 15% on the $3,500, being $525.
How do I pay this tax?=
The Australian Taxation Office will issue a Div293 Notice of Assessment outlining how they have calculated the income, contributions and tax liability. From here, there are two options available. First is to pay this tax from your own pocket. The second is to request your super fund to pay this for you. Both options have relevant deadlines, so ensuring that this notice of assessment is not missed means you have the freedom to make a choice. If one of these dates is missed, the opportunity to have this tax paid from your super fund disappears and there is no choice but to pay this tax personally.
Once an election has been made, the tax is paid to the Australian Taxation Office and they manage the process from there.
What’s Next?
Most of the time this tax cannot be avoided. However, understanding how it works and planning for potential one-off events in advance helps reduce the impact of this tax. If you’d like to hear more about this topic, please check out our website, social media or book in for a complimentary discussion with one of our Advisers. We look forward to making your retirement journey easy.