For most high-income earners, contributing to superannuation (super) is a tax-efficient way to save for retirement. However, there are tax rules in place to ensure fairness, especially as your income rises. Under Division 293 of the Income Tax Assessment Act, high-income earners may face an additional 15% tax on their concessional (before-tax) super contributions if their combined income and concessional contributions exceed $250,000 in a financial year.
Here’s a breakdown of how the Division 293 tax works and what it means for you as a high-income earner.
Division 293 Tax: What It Means for High-Income Earners
The Division 293 tax is an extra tax imposed on some of the super contributions made by high-income earners. It aims to reduce the tax advantages they receive from the super system compared to those on lower incomes. The tax only applies when your income and concessional super contributions combined exceed $250,000 in a financial year.
Here’s how it works:
- If your income + concessional super contributions is greater than $250,000, you’ll pay an additional 15% tax on the concessional contributions above this threshold.
- For example, if your income is $240,000 and your concessional contributions are $20,000, only the amount above the $250,000 threshold—$10,000—will be subject to the extra 15% Division 293 tax.
Why Do I Have to Pay Division 293 Tax?
Division 293 tax ensures that high-income earners, who pay a lower tax rate on super contributions compared to their marginal income tax rate, do not receive an unfair advantage.
For example, in the 2024–25 tax year, if your marginal tax rate for income over $190,000 is 45%, your concessional super contributions are taxed at just 15%. This gives you a substantial tax saving, which is more significant than that received by individuals earning between $45,001 and $135,000, whose marginal tax rate is 30%.
To make the system fairer, the Division 293 tax brings the tax on concessional contributions for high-income earners closer to what middle-income earners pay, adding an extra 15% tax on contributions for those who cross the threshold.
Important to note: Even if your income exceeds $250,000 due to a one-off event—like a capital gain, a salary bonus, or an eligible termination payment—you’ll still be subject to Division 293 tax for that year.
Division 293 Tax: Changes Over Time
In 2017, the Australian government lowered the income threshold for Division 293 tax from $300,000 to $250,000, aiming to make the super system more equitable and sustainable. Since then, the threshold has not been indexed, meaning as wages increase over time, more individuals will become liable for Division 293 tax.
How Is Division 293 Tax Calculated?
The Australian Taxation Office (ATO) calculates your Division 293 tax by:
- Determining your income for Division 293 tax purposes, which includes your taxable income, reportable fringe benefits, and other specific types of income.
- Adding your concessional super contributions, such as employer contributions and salary-sacrificed amounts.
Once your income and concessional contributions are assessed, any concessional contributions over the $250,000 threshold will be taxed at an additional 15%.
Minimizing the Impact of Division 293 Tax
Although Division 293 tax is unavoidable if you exceed the income threshold, you can take steps to manage its impact:
- Plan your contributions wisely: Speak to a tax advisor or accountant to determine the best way to structure your super contributions without breaching the threshold unnecessarily.
- Monitor one-off income events: Be mindful of one-off income spikes, like capital gains or bonuses, that may push you over the threshold for a particular year.
Navigating the complexities of Division 293 tax and other super-related tax issues can be challenging. At BOA & Co. Chartered Accountants, we specialize in tax strategies for high-income earners, ensuring that you maximize your super benefits while minimizing additional taxes. Our team of experts can help you understand your obligations and plan for a more secure financial future.
Contact us today at 1300 952 286, email service@boanco.com.au, or visit www.boanco.com.au to schedule a consultation and explore how we can help you optimize your super contributions and overall financial strategy.