Division 293 tax is an additional tax on concessional superannuation contributions for high-income earners in Australia.
Its purpose is to reduce the tax advantage that wealthier individuals receive on their super contributions, making the system more equitable.
Key Takeaways
- Division 293 Tax is an additional tax on concessional superannuation contributions for high-income earners in Australia.
- You pay this tax if your income plus concessional super contributions exceed $250,000 in a financial year.
- Division 293 Tax is calculated at 15% of the lesser amount between excess income over $250,000 and total concessional contributions.
- You have 21 days to pay after receiving your Division 293 notice; ignoring it may lead to penalties.
- Temporary residents may get a refund of Division 293 Tax upon leaving Australia and receiving a Departing Australia Super Payment (DASP).
Who It Applies To
You may be subject to Division 293 tax if your:
- Income + concessional super contributions exceed $250,000 in a financial year
- Income includes:
- Taxable income
- Reportable fringe benefits
- Net investment/rental losses
- Trust distributions
- Some lump sum super payments
- One-off events like capital gains, bonuses, or redundancy payouts
What Are Concessional Contributions?
These are before-tax contributions to your super, such as:
- Employer Super Guarantee (SG) contributions (usually 12% of your income).
- Salary-sacrifice contributions.
- Personal contributions claimed as tax deductions.
Why Division 293 Tax Exists
Division 293 tax was introduced to make the superannuation system more equitable. High-income earners receive greater tax benefits from concessional contributions due to higher marginal tax rates.
For someone earning over $190,000, the marginal tax rate (including Medicare levy) is 47%, compared to 15% paid on concessional super contributions – a 32% tax saving. Conversely, middle-income earners earning $45,001-$135,000 face a 30% marginal tax rate, creating just a 15% tax benefit.
Division 293 narrows this gap for high earners, making the system fairer across income levels.
Note: Even with Division 293 tax, a 30% total tax rate on concessional contributions is still 17% lower than the 47% top marginal rate, so super contributions are still tax-effective compared to the usual income tax rate applied to income.
How Is Division 293 Tax Calculated?
The tax is 15% of the lesser of:
- The amount your combined income and contributions exceed $250,000.
- Your total concessional contributions for the year.
Example:
- Income = $240,000
- Concessional contributions = $28,800
- Combined total = $268,800
- Excess over income threshold = $16,800
The lesser amount between concessional contributions ($28,800) and the excess over the threshold ($16,800) is $16,800
Tax is calculated as follows:
- 15% on the concessional contributions of $28,800 = $4,320
- Plus 15% Division 293 tax on $16,800 = $2520
How Do I Pay Division 293 Tax?
Many people are surprised to discover Division 293 tax isn’t calculated automatically as part of your regular tax return.
Instead, once the ATO processes your tax return and receives confirmation of your annual superannuation contributions from your employer, they then calculate any Division 293 tax owing and issue a Division 293 notice.
This usually arrives 4-12 weeks after you submit your tax return. Therefore, if you think you’ll be subject to Division 293, it’s important to keep some money aside for this payment when the ATO requests it.
You can pay:
- Directly from personal funds.
- By releasing money from your super via myGov.
How Long Do I Have to Pay?
You have a strict 21-day payment window after receiving your Division 293 notice. This is where many people get caught unprepared. If you don’t pay within this timeframe, the ATO will charge interest on top of the amount owing.
If you’re electing to pay from super, allow extra time (typically 2-4 weeks) for your election form to be processed after submitting it, as the ATO needs time to speak with your fund provider.
Strategies to reduce Division 293 tax impact
Several planning strategies may help minimise the amount of Division 293 you have to pay:
- Income Management: Since Division 293 is triggered by spikes in income (e.g., bonuses, redundancy payouts, capital gains), timing these payments across different financial years may help some individuals. Discuss this with your accountant.
- Salary Sacrifice Review: Consider whether your current salary sacrifice arrangement is optimal. Reducing salary sacrifice might keep you below the $250,000 threshold, though this depends on your specific income level and circumstances.
- Concessional Contribution Caps: Maximise use of your unused concessional contribution caps from prior years (if your total super balance is below $500,000) rather than exceeding the $30,000 annual cap.
- Non-Concessional Contributions: Directing contributions to non-concessional (after-tax) contributions isn’t subject to Division 293 tax, though these have different caps and rules, and you can’t claim a tax deduction on these contributions, otherwise they become concessional.
Common Division 293 Questions and Misconceptions
Unfortunately, no. If your Division 293 income exceeds $250,000, Division 293 tax is unavoidable. However, tax planning strategies can minimise the amount you’re required to pay.
No. Your employer doesn’t withhold it. The ATO calculates it after processing your tax return and super contribution data, then sends you a separate notice. This is why people often are caught by surprise.
Yes, possibly. One-off events like bonuses, redundancy payments, and capital gains are included in your Division 293 income. If the year’s total exceeds $250,000, Division 293 tax applies, even if it’s unusual for you.
No. The amount released from your super is not subject to additional tax when released for this purpose. However, releasing money from your super reduces your retirement savings, so this should be considered carefully.
No. It has remained at $250,000 since July 2017 and is currently under policy review. This means more high-income earners may become subject to Division 293 as incomes rise naturally over time.
Temporary Residents and Division 293 Tax Refunds
If you were a temporary resident of Australia during the period you paid Division 293 tax, you may be eligible for a refund. When you depart Australia and receive a Departing Australia Super Payment (DASP), any Division 293 tax paid is refunded. You’ll need to apply to the ATO using their specified form.
Division 293 Notice Received?
Here’s what to do when you receive a Division 293 Notice:
- Don’t ignore it: You have 21 days to respond. Ignoring the notice results in ATO penalties and interest.
- Review the calculation: Check that the ATO has correctly included all income sources and your concessional contributions. Check with your tax agent if you’re unsure.
- Decide your payment method: You can pay personally or elect to release funds from your super via your myGov account.
- If paying from super: Lodge this form quickly – the ATO needs time to process and instruct your fund.
- Keep records: If you elected to pay from super, keep documentation for your records and future tax planning.
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