Are you planning for Division 293 tax and trying to figure out how much you may owe? In case if you have a high-income earner of around $250,000 or above making concessional super contributions, it can be helpful to understand how Division 293 tax is calculated. The additional tax of 15% may apply in case if the income that includes your Division 293 income and relevant super contributions exceed $250,000.
Understanding the calculation of the extra tax before getting an assessment is useful in making your plans. In this guide, we explain what Division 293 tax is, who pays for Division 293 tax, how it is calculated by the ATO and everything else you should know to avoid surprises and make better-informed decisions about your income and super contributions.
Understanding Division 293 Tax
Division 293 tax is the additional tax on superannuation contributions that results in reducing the tax benefit for those people whose aggregate income and concessional contributions in relation to Division 293 tax are more than $250,000. Division 293 tax is levied on 15% of the excess above the threshold amount or the taxable super contributions, whichever is lower.
Division 293 income means your taxable income, reportable fringe benefits and total net income or losses from investments. The Division 293 super contributions refer to your concessional contributions minus any excess concessional contributions. The current concessional tax rate of 15% makes the Division 293 double it to 30%.
How Is Division 293 Tax Calculated?
The Division 293 tax calculation usually follows these steps:
Step 1. Find your Division 293 income
Your tax return is used to find your Division 293 income.
Step 2. Find your Division 293 contributions
Your super fund gives your contribution information, which is used to find your Division 293 super contributions.
Step 3. Check if you meet the conditions
Division 293 tax could apply when:
- You have super contributions for the income year; and
- Your total Division 293 income and super contributions are more than $250,000.
Remember, taxable super contributions can include contributions like employer, super guarantee, salary sacrifice and deductible personal contributions as well as some rollover superannuation benefits, minus any excess concessional contributions.
Step 4. Calculate the Division 293 tax
The tax is 15% of the smaller of:
Amount over the $250,000 limit or Taxable super contributions
Step 5. Assessment
The assessment is sent once all needed information is, in. If you have than one super fund and more contribution details come in after you filed your tax return your Division 293 assessment could change.
ATO Example of Division 293 Tax Calculation
Here is a clear example of Division 293 Tax Calculation by ATO
Let’s say Riba has:
- Division 293 income of $240,000
- Division 293 super contribution of $15,000
Now Riba’s combined amount is:
$240,000 + $15,000 = $255,000
The amount above the $250,000 threshold is:
$255,000 − $250,000 = $5,000
Now, the ATO compares this $5,000 excess with Riba’s $15,000 Division 293 super contributions. Since, the lesser amount is $5,000, her Division 293 tax is therefore:
$5,000 × 15% = $750
So, Riba’s Division 293 tax liability is $750.
Division 293 Income
The income part of the Division 293 tax calculation applies to the same income calculation method that is applied to determine the Medicare levy surcharge (MLS) (excluding any reportable superannuation contributions).
This income is made up of the following:
- Taxable income (assessable income minus allowable deductions)
- The total value of fringe benefits reported.
- Losses on investments, net, or decrease in net investment income
- Net rental property loss
- Net amount (for which family trust distribution tax has been paid)
- For taxed elements that have a tax rate of zero, the result will be a super lump sum.
- Assessable first home super saver released amount.
These amounts are added up (except the super lump sum and assessable first home super saver released amount, which are subtracted) to give the income amount.
One-off Events and Division 293 Tax
Where your income is normally under $250,000, there are some events that can push your income to $250,000 or more for any particular year, thus resulting in applicability of Division 293. These events include:
- Receiving an eligible termination payment
- Making a capital gain
- Any other significant increase in income
This additional tax is likely to make salary sacrificing and/or making higher contributions less appealing for those with income of less than or at the top of the income band ($250,000 +).
Payment Options & ATO Notification
If you receive a division 293 tax notice from the ATO and you are re a high income earner, you have options about how to pay. You can pay the tax yourself, or you can fill in an election form to have the tax deducted from your superannuation savings within 60 days of the date of the election notice.
Steps to Pay Division 293 tax in Australia
The steps to pay Division 293 tax in Australia are generally as follows:
- Australian Taxation Office (ATO) Notice: The Australian Taxation Office (ATO) will inform you of your tax obligations if you are liable to Division 293 tax. This notice will detail your division 293 tax liability and explain how to pay it.
- Read the notice: Take the time to read the notice from the ATO to make sure it is correct. Verify the amount of tax calculated is commensurate with income and super earned for the financial year in question.
- How to make payment:
Option 1: With your own money (via EFT, BPAY, Credit Card, Direct Debit or payment by mail), or
Option 2: By releasing money from super, by completing an election form via myGov or a paper form. Most defined benefit funds will not be able to send amounts, please see your fund first before filling out the election form. ATO will then receive and process the election form and issue the “Authority to Release Statement” to you on how to proceed with payment. - Record transactions: Ensure that records of the transactions are kept, it may be required for future verification.
Which Super Contributions Are Counted?
Your concessional contributions (excluding excess concessional contributions) are the contributions that count towards Division 293 tax purposes. If your concessional contribution cap has been raised because of using carried forward amounts, all your contributions in your raised cap will count towards your division 293 contributions.
Generally, these are made by concessional contributions, which include:
- Employer superannuation contributions
- Super Guarantee contributions
- Salary sacrifice contributions
- Personal super contributions (deductible)
- Certain rollover superannuation benefits
Super contribution management can become critical in case your earnings approach the Division 293 limit. Get in touch with us for the expert advice on how your contribution plan may affect your tax situation.
Things to Consider About Division 293 Tax:
There are a number of important points people should know about Division 293 tax. They are:
Thresholds
Division 293 tax is levied on people whose combined income and concessional superannuation contributions are over $250,000 in a financial year. It should be noted that this tax threshold may be subject to change, based on legislative changes or government decisions.
Concessional Contributions Cap
Concessional contributions are employer contributions (including employer superannuation guarantee contributions and salary sacrifice contributions) and personal contributions claimed as a tax deduction. People should be aware of how much they are contributing so as not to go over the cap in concessional contributions.
Calculations
Division 293 tax will be calculated at 15% of the lesser of:
- The amounts an individual contributes to his or her superannuation is more than the concessional contributions cap.
- The surcharge income is the amount of the individual’s income above Division 293 threshold.
Retirement Savings
Division 293 tax has an impact on the tax concession individuals receive on your superannuation contribution. If you earn a lot, you might have to review your retirement savings plans considering the lower tax advantage.
Planning Opportunities
Although tax increases for superannuation contributions for high income earners under Division 293, there may be planning opportunities to reduce the impact such as contribution timing, alternative tax-efficient investment strategies and consider non-concessional contributions.
Reporting and Compliance
People affected by the Division 293 tax are required to accurately report your income and superannuation contributions and should budget for extra tax.
Why Does Division 293 Tax Exist?
Basically, Division 293 Tax makes the super system fairer. The concessional 15% rate is more beneficial for high income earners as they would otherwise be liable to pay up to 47% tax on this income, making Division 293 more advantageous for them than middle income Australians.
What Can Make Your Division 293 Liabilities More?
There are a few circumstances that show your division 293 income or super contributions are higher for an individual year.
- Securing a higher employment or business income: If your Division 293 income rises significantly, such as a result of an increase in salary, business income, bonuses or other assessable income, the income may come closer to or exceed the threshold.
- Reportable Fringe Benefits: Reportable fringe benefits can also be included in the calculation of Division 293 income and may boost the amount you use in the calculation.
- Rental or Investment Losses: For net rental property losses and net financial investment losses can be offset. This means that the amount of income from your division 293 may be greater than the amount of taxable income that you reported on your tax return.
- Large Concessional Contributions: You can increase your division 293 super contribution amount by employer contributions, salary sacrifice and deductible personal contributions.
- One-Off Income Events: Generally, you will have income below the threshold in a year, but above the threshold in another year, because of a big capital gain, a qualifying termination payment or any other major windfall. The ATO notes that Division 293 can therefore apply in only one income year.
Division 293 Tax vs Regular Super Tax
There is a difference between regular super contribution tax and division 293 tax.
Standard earnings from concessions are taxed at 15% in the super fund. However, Division 293 may require an additional 15% tax on the relevant amount of those contributions for some higher income taxpayers.
This means that the contributions can be taxable at 30%, under the Division 293 rules and conditions. It is not necessarily 30% of your entire super balance or of your contributions that will be taxed. Division 293 only applies to the amount calculated under the specific calculation outlined above.
Conclusion
Division 293 tax is not as simple to calculate as you might think; there is more to it than just whether your taxable income is over $250,000. This is because the amount of your income that is subject to the extra 15% tax will depend on your division 293 income, concessional super contributions and certain income adjustments.
You can plan to ensure you are aware of your potential liabilities and make decisions as to what deductions, super contributions and other tax planning opportunities you want to take to potentially avoid Division 293 tax liability. If you want to know how much tax your division 293 liability is, contact our tax professionals for a consultation today. Connect with us, and we can discuss your income and super contributions, and your Division 293 assessment, and assist you in creating a tax strategy that is appropriate for your financial situation.
