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For most high-income earners, saving for retirement through super is a sensible, tax-effective strategy; but there are limits. As your income rises, you could end up paying extra tax on your concessional (before-tax) super contributions.
Under the Division 293 tax rules, if your income and concessional contributions total more than $250,000 in a financial year, you may have to pay an additional 15% tax on some or all of your super contributions.
Division 293 tax is imposed on top of the normal 15% contributions tax paid on concessional contributions when they enter your super account.
Division 293 tax: What it means for high income earners
Division 293 tax is an extra charge imposed on some of the super contributions made by higher income earners to reduce the tax benefits they receive from the super system.
If your income plus any concessional (before-tax) super contributions totals more than $250,000 in a particular financial year, you are liable for Division 293 tax of 15% on the amount of concessional contributions above this threshold.
Why do I have to pay Division 293 tax?
The extra 15% tax imposed under the Division 293 rules is applied because, as a high-income earner, your marginal tax rate (without the 2% Medicare levy) for income amounts over $180,000 is 45% (in 2023–24). When you make a concessional contribution into your super account, however, you only pay a 15% tax rate.
This means you are receiving a bigger saving on your tax bill by making super contributions than someone earning between $45,001 and $120,000 (whose marginal tax rate is 32.5% in 2023–24).
To make things fairer, Division 293 imposes an additional tax of 15% on higher income earners to bring the amount of tax they save on their super contributions closer to that paid by someone on an average income.
Unfortunately, Division 293 tax is applied even if your income goes over the $250,000 threshold due to a one-off event – such as making a capital gain or receiving an eligible termination payment or salary bonus.
In these situations, the tax rate for your concessional contributions during that financial year increases if you exceed the threshold but drops back the following year when your income goes back under the Division 293 threshold.
Calculating your Division 293 tax
The ATO calculates your Division 293 income and Division 293 super contributions by:
1. Determining your income for Division 293 tax purposes
The ATO uses your income tax return to determine your annual Division 293 income. This is based on the same income calculation used for the Medicare levy surcharge, disregarding any reportable super contributions.
The ATO’s income calculation is based on your:
- Taxable income (your assessable income minus allowable deductions)
- Total reportable fringe benefits
- Any after-tax amounts for financial investment and rental property losses
- Any after-tax amounts from family trust distributions
- Super lump sum taxed elements with a zero tax rate
- Any assessable First Home Super Saver Scheme (FHSSS) released amounts.
These amounts are added up (except the super lump sum and assessable FHSSS released amount, which are subtracted) to give the income amount.
2. Determining your super contributions for Division 293 tax purposes
Super contributions counted for Division 293 tax purposes are your concessional (before-tax) contributions such as:
- SG contributions made by your employer
- Salary-sacrifice payments
- Personal super contributions for which you claim a tax deduction
- Defined benefit contributions if you are a member of a defined benefit super fund.
How does the Division 293 tax work?
You are only required to pay Division 293 tax if your income and concessional contributions for Division 293 purposes exceeds the annual threshold.
You will be liable for the extra tax on either your Division 293 super contributions, or the amount that is over the current threshold – whichever amount is lower.
Paying a Division 293 tax debt
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 and the annual return from your SMSF (if you are an SMSF member).
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 a Division 293 tax bill either with your own money, or by electing to use your existing super account balance via myGov. If you want to pay with your super balance but can’t access MyGov you can complete and submit a Division 293 tax due and payable election form to the ATO.