Higher income earners sometimes receive an unexpected additional tax bill related to their superannuation, separate from their regular income tax assessment. However, this isn’t an error. It’s Division 293 tax — a specific measure that reduces the usual super contribution tax concession for people above a certain income level.
Normally, the fund taxes concessional (before-tax) superannuation contributions at a flat, concessional rate. This rate is generally lower than most people’s marginal income tax rate. Division 293 tax applies an additional tax on some or all of a person’s concessional contributions. This happens once their income, combined with those contributions, exceeds a specific threshold — effectively reducing the size of the tax concession for higher earners.
The standard concessional tax rate on super contributions provides a bigger relative benefit to higher income earners. That’s because the gap between their marginal tax rate and the concessional super rate is larger than for lower income earners. Consequently, the government introduced Division 293 tax to reduce this disparity, applying additional tax specifically to the contributions of those above the relevant income threshold.
Broadly, your income for this purpose combines your taxable income, certain fringe benefits, and concessional super contributions. If this combined figure exceeds the Division 293 threshold, additional tax applies. It applies either to the portion of your concessional contributions that pushed you over the threshold, or to all your concessional contributions if your income already sat above it before you added those contributions. Therefore, the exact calculation depends on where your income sits relative to the threshold. It’s worth reviewing your specific position, rather than assuming a flat rate applies.
The ATO generally issues a separate Division 293 assessment once it processes your return. This happens after it assesses your income, including relevant super contributions, against the threshold. Consequently, this often arrives as a separate notice, distinct from your regular notice of assessment. That’s part of why it catches some people by surprise.
You can generally choose to pay a Division 293 tax liability personally. Alternatively, you can release the amount from your superannuation fund to cover the assessment. Therefore, understand both options and their implications before deciding. Releasing funds from super reduces your retirement balance, while paying personally preserves it.
If you’re close to the Division 293 threshold, additional salary sacrifice contributions could trigger or increase this extra tax. It’s worth factoring this into any decision about increasing your super contributions. Consequently, understanding your likely position relative to the threshold is an important part of planning any voluntary super contribution strategy.
Assuming it’s an error. A Division 293 assessment is a legitimate, separate tax measure. It’s not a mistake, even though it can feel unexpected the first time you receive it.
Not planning for it when increasing super contributions. People increasing salary sacrifice to reduce their income tax sometimes don’t realise this could trigger or increase a Division 293 liability.
Assuming it only affects very high earners. The threshold, while relatively high, catches a broader range of income earners than many people expect. This especially applies when fringe benefits or investment income factor into the calculation.
EBATS helps higher income earners understand their Division 293 exposure and plan superannuation contributions with the full tax picture in mind.
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