Understanding Division 293 Tax: How High-Income Earners’ Super Contributions Are Impacted
Introduction
Division 293 tax is an additional tax on concessional (before-tax) superannuation contributions for individuals whose income plus those contributions exceed a specific threshold. It effectively reduces the tax concession that high-income earners receive on their super contributions.
This blog explains how Division 293 works, how it is calculated, what counts as income, who pays it, how to respond when assessed, and strategies to manage it. If you are a high-income earner or expect your income to cross the threshold, understanding this tax is essential for your tax planning.
What Is Division 293 Tax and Why It Exists
Division 293 tax imposes an extra 15% tax on concessional super contributions when an individual's combined income and those contributions exceed $250,000 in a financial year.
Its purpose is to narrow the tax advantage enjoyed by high-income earners, making the superannuation system fairer across income levels. Since the 2017-18 financial year, the threshold has been $250,000 and it remains unchanged.
Who Is Subject to Division 293 Tax
Division 293 applies to individuals whose income plus concessional contributions exceed $250,000. The definition of income for Division 293 purposes is broader than standard taxable income.
Included income sources are:
- Taxable income
- Reportable fringe benefits
- Net investment and rental property losses
- Trust distributions
- Some lump sum super components (with adjustments)
It is important to note that one-off events such as a capital gain, redundancy payment, or bonus can tip your income above the $250,000 threshold in a single year, even if your regular income sits well below it.
What Counts as Concessional Super Contributions
The following types of contributions are classified as concessional and are relevant for Division 293 purposes:
- Employer Super Guarantee (SG) contributions
- Salary-sacrifice contributions
- Personal deductible contributions
- Some roll-over benefits
In defined benefit funds, contributions are measured by the increase in the defined benefit value rather than actual dollar amounts contributed.
If you have unused concessional caps carried forward from previous years and use them in a single year, those amounts also count toward the Division 293 calculation.
How Division 293 Tax Is Calculated
The Division 293 tax is 15% of the lesser of:
- The excess of combined income and contributions over $250,000
- The total concessional contributions for the year
Example 1
Jan has income of $240,000 and concessional contributions of $15,000. Her combined total is $255,000. The excess over the threshold is $5,000. Since $5,000 is less than her $15,000 in contributions, the tax applies to $5,000. Division 293 tax = $5,000 x 15% = $750.
Example 2
Sarah earns $280,000 with concessional contributions of $32,200. Her combined total is $312,200. The excess over the threshold is $62,200. Since her contributions of $32,200 are less than the $62,200 excess, the tax applies to $32,200. Division 293 tax = $32,200 x 15% = $4,830.
How You Will Know If You Need to Pay
The ATO issues a Division 293 notice after assessing your tax return and matching it against super fund data. Notices appear in myGov or are sent to your registered tax agent.
If super fund data arrives late, you may receive an amended assessment at a later date. This is why it is important to work with an experienced tax accountant who can anticipate Division 293 exposure and plan accordingly.
What to Do If You Disagree with the Assessment
If you believe the Division 293 assessment is incorrect, you should:
- Review your income and contribution figures carefully against your own records
- Amend your tax return or ask your super fund to correct their report if there is an error
- If the figures are still incorrect after those steps, lodge a formal objection with the ATO
Our accounting and taxation team can assist with reviewing your assessment and lodging objections where appropriate.
Options for Paying Division 293 Tax
Personal Payment
You can pay the Division 293 tax using your own funds before the due date. Paying on time avoids interest charges.
Release from Super
You may elect to pay by releasing money directly from your super fund. This option preserves your personal cash flow but reduces your super balance.
Special Cases
Defined Benefit Members
For individuals in defined benefit funds, the assessment is issued but payment is deferred until benefits are paid out. A deferred debt account is created to track the liability.
Interest on Deferred Debt
Interest accrues annually on deferred Division 293 debt at the 10-year Treasury bond rate. This means the liability grows over time if left unpaid.
Voluntary Early Payment
You may choose to pay deferred liabilities early to avoid accumulating interest. This can be a worthwhile strategy depending on your circumstances.
Temporary Residents
Some temporary residents may be eligible for refunds of Division 293 tax when leaving Australia permanently. Specific conditions apply.
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Strategies to Manage or Reduce Division 293 Tax
There are several approaches that can help manage your Division 293 exposure:
- Claim deductions: Reduce taxable income with legitimate deductions to bring your combined total below the threshold.
- Time contributions carefully: Delay or advance contributions into years when your income is expected to be below the threshold.
- Spouse contributions: Consider boosting the lower-income spouse's super instead, which may also qualify for a tax offset.
- Non-concessional contributions: These after-tax contributions are not subject to Division 293 tax and can still build your super balance.
- Manage one-off events: Plan around large capital gains, bonuses, or redundancy payments where possible.
It is worth maintaining perspective. Even after Division 293, concessional contributions taxed at 30% often remain more favourable than paying tax at the top marginal rate of up to 47%.
A tailored strategy from our business advisory team can help you balance contribution timing, deduction planning, and overall tax efficiency.
How Division 293 Fits in the Broader Super Landscape
Standard concessional contributions are taxed at 15% within the super fund. Division 293 increases this to 30% for high-income earners, but super remains an attractive savings vehicle because top marginal tax rates approach 47%.
Future reforms may further alter how large super balances are taxed. Staying informed and reviewing your strategy regularly with a qualified accountant is the best way to adapt as the rules evolve.
Key Takeaways for High-Income Earners
- Division 293 applies if income plus concessional contributions exceed $250,000
- The tax is an extra 15% on concessional contributions, up to the lesser of the excess or contributions
- You will be notified via a Division 293 notice from the ATO
- Payment can be made personally or through your super fund
- Strategies exist to minimise your exposure
- Super contributions often remain beneficial, even with Division 293 tax
Conclusion
Division 293 tax impacts high-income earners by reducing the tax concession on concessional super contributions. It applies when income plus concessional contributions exceed $250,000. The ATO automatically issues an assessment, and payment can be made personally or from super. Defined benefit members face special rules with deferred debt.
With careful planning, such as adjusting contribution timing, making spouse contributions, or shifting to non-concessional contributions, you can manage your exposure effectively. For many high-income earners, super contributions remain one of the most effective ways to build retirement savings, even with the Division 293 tax in place.
For expert guidance on Division 293 and broader tax planning, contact Trinity Accounting Practice today.
Trinity Accounting Practice
Accounting Firm in Beverly Hills, Sydney
Phone: 02 9543 6804
Address: 159 Stoney Creek Road, Beverly Hills NSW 2209
Website: www.trinitygroup.com.au
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Disclaimer: Information provided on this website is intended as a general overview only and does not replace professional advice tailored to your personal circumstances.
