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28 June 2018

Division 293 Tax Explained

What is Division 293 Tax?

The Division 293 tax was introduced on 1 July 2012 for individuals with an annual income greater than a threshold of $300,000, in an effort to reduce the tax concessions on super contributions available to high-income earners. 

From 1 July 2017 the annual income threshold was lowered to $250,000 in adjusted income.

Adjusted income is not just your taxable income, but also includes added back items, such as salary sacrifice, salary packaging and investment/rental losses. The ATO then adds your super contributions on to this to get to the final income for Division 293.  

Prior to Division 293, high-income earners would receive a significantly larger concession on super contributions compared to low and middle-income earners.

If the super contributions for an individual earning income at a marginal tax rate of 45% had been included in their total salary or business income, the contribution amount would have been taxed at 45%. As super contributions are taxed at 15%, the high-income earner has received a concession of 30% on their super contributions.

In contrast, a middle-income earner is subject to a marginal tax rate of 32.5%, so they only receive a tax concession of 17.5% on their super contributions.

How is Division 293 Tax calculated?

Division 293 tax is calculated based on 15% on the lesser of:

  • The amount earned in excess of the annual threshold, or
  • Concessional (i.e. pre-tax) super contributions

The ATO uses the details reported on your tax return and the superannuation contributions reported by your super fund/s to assess whether you’re liable for Division 293 tax.

Below is a list of all items included as income when calculating whether you’re liable for Division 293 tax:

  • Taxable income (assessable income less any deductions)
  • Employer and personal superannuation contribution amounts
  • Reportable fringe benefit amounts
  • Net financial and rental investment losses
  • Work-related compensation payments
  • Amounts on which family trust distributions tax have been paid
  • Some components of employment termination payments (ETP)
  • Some components of super lump sum payments

How it is paid?

A Division 293 notice is generally issued after the lodgement of your annual tax return and payment of the assessment will be due within 21 days of the notice.

Individuals can either pay the assessment out of their own pocket or elect to have their superannuation fund pay the amount due. A Release Authority is issued with the Division 293 assessment notice, which can be filled in and sent to your superannuation fund to instruct them to pay the tax from your superannuation account.
 
Example

For the 2017-18 financial year, Peter earned $260,000 in total taxable income and his employer contributed a total of $20,000 in concessional superannuation contributions.

Therefore, Peter’s total income for Division 293 purposes is $280,000, being the sum of the two amounts above. As Peter’s income exceeds the $250,000 threshold for 2017-18 tax year, he will be assessed for Division 293 Tax.

His Division 293 tax will be calculated based on the lesser of:

  • The amount earned in excess of the $250,000 threshold – i.e. $280,000 less $250,000 = $30,000, or
  • The total concessional superannuation contributions = $20,000

As the total concessional superannuation contributions is the lesser of the two amounts, his tax will be calculated at 15% of $20,000.

Therefore, Peter’s total Division 293 assessment will be $3,000.

 

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