Division 293 tax is an additional tax applied to high-income earners in Australia on their concessional superannuation contributions. It was introduced to make the superannuation tax system fairer by reducing the gap between the tax benefits received by low- and high-income earners.
Normally, concessional contributions such as employer Superannuation Guarantee payments and salary sacrifice are taxed at 15% within the fund. If your income plus concessional contributions exceeds the Division 293 threshold, an extra 15% tax applies, bringing the total tax on those contributions to 30%.
Advanced
Currently, the Division 293 threshold is $250,000 (assessed each financial year). Income for this test includes taxable income, reportable fringe benefits, and total concessional contributions. If the threshold is exceeded, Division 293 tax is applied to the lesser of:
- Concessional contributions, or
- The amount above the $250,000 threshold.
The tax can be paid directly to the Australian Taxation Office (ATO) or released from the individual’s super fund. This system ensures that higher-income earners do not receive disproportionate tax concessions compared to average workers.
Relevance
- Ensures fairness in the superannuation system by reducing tax advantages for high earners
- Impacts retirement planning strategies for professionals and executives
- Important consideration when structuring salary sacrifice arrangements
Applications
- High-income employees contributing concessional amounts to super
- Executives and professionals using salary sacrifice to reduce taxable income
- Tax planning to manage exposure to Division 293 tax
- Reviewing contribution strategies to optimise retirement savings
Metrics
- Income plus concessional contributions compared to the $250,000 threshold
- Amount of concessional contributions subject to 30% tax
- Total superannuation growth after additional tax applied
- Number of Division 293 assessments issued by the ATO
Issues
- Reduces the tax benefit of contributing to super for high earners
- May discourage additional concessional contributions above SG levels
- Complex rules can create confusion in calculating liabilities
- Incorrect planning can lead to unexpected tax bills
Example
An executive earns $240,000 and receives $20,000 in concessional contributions. Their total of $260,000 exceeds the $250,000 threshold. Division 293 tax applies to $10,000, adding an extra 15% tax ($1,500) on top of the standard 15% already paid within super.
