Are you a high-income earner in Australia? If so, you may need to familiarise yourself with Division 293 tax—a tax that could affect your superannuation contributions. This blog post is designed to break down the complexities of Division 293 tax and explain it in a way that’s easy to understand for beginners.
What is Division 293 Tax?
Division 293 tax is an Australian tax measure introduced to level the playing field when it comes to tax concessions on superannuation contributions. It ensures that high-income earners don’t receive a disproportionately high tax advantage on their super contributions compared to average income earners.
Who Does Division 293 Tax Affect?
This tax applies to individuals whose combined income and super contributions exceed the Division 293 threshold, which has been set at $250,000 since the 2017–18 income year. Prior to that, from 2012–13 to 2016–17, the threshold was $300,000.
How is Division 293 Tax Calculated?
To determine if you’re liable for Division 293 tax, you need to add your income for the year to certain super contributions (mainly concessional contributions). If this total goes over the $250,000 threshold, Division 293 tax is charged at a rate of 15% on the lesser of the excess over the threshold or the super contributions.
Payment of Division 293 Tax
Once assessed, you have the option to pay the Division 293 tax out of your own pocket or use a release authority to pay it from your super fund. It’s important to note that if you choose to release funds from your super to pay the tax, it may impact your retirement savings. You will receive your Division 293 tax assessment after you have lodged your individual income tax return and the ATO has received and processed the relevant Member Accounts Transaction Service (MATS) reports from your super fund. The ATO typically issues these assessments throughout the year, with a spike in volume around key lodgment dates, such as October 31. If you’re liable for Division 293 tax, the ATO will send you an assessment notice detailing the amount due and the payment options available to you.
Deferred Division 293 Tax
For those with defined benefit interests, the payment of Division 293 tax can be deferred until a super benefit is paid. The Australian Taxation Office (ATO) keeps a deferred debt account, which accrues end-of-year interest at the average 10-year Treasury bond rate.
Interest Rates on Deferred Tax
The ATO publishes the interest rates applicable to deferred Division 293 tax debt accounts. For example, for the 2022–23 income year, the rate was 3.6096%. This interest ensures that the deferred tax keeps its value in real terms over time.
Conclusion
Division 293 tax is an important consideration for high-income earners in Australia. By understanding how it works, you can better manage your superannuation contributions and prepare for any additional tax liabilities. We hope this guide has provided you with a clearer understanding of Division 293 tax. For more detailed information, visit the official ATO website or get in touch with our team.
