For many high-income earners, one popular strategy to save for retirement is through superannuation. Be aware though, as you may fall victim to the silent Division 293 tax.
Division 293 was a tax initiative first implemented in the 2013/2014 financial year. It was designed to level out the concessional tax treatment on superannuation contributions enjoyed by taxpayers with high incomes.
Concessional superannuation contributions are taxed at 15% within superannuation funds. Individuals with higher incomes, paying higher income tax rates, subsequently receive a larger tax concession as opposed to those whose incomes sit in the lower tax brackets.
Division 293 imposes an additional tax of 15% on individual concessionally taxed superannuation contributions, where the person’s taxable income (for Division 293 purposes) exceeds $250,000. Effectively bringing the tax on concessional superannuation contributions up to 30%. This is capped at an assessable tax of $3,750.
It is important to note you may also be liable for Division 293 due to one off events, such as:
- Capital gain on the sale of assets;
- Salary sacrificed amounts;
- Employment termination payments; and/or
- Passive income (rental income, dividends, interest, etc.).
Worked Example
Taxpayers income:
- Gross Salary $230,000
- Capital Gains $15,000
- Bank Interest $5,000
- Superannuation Guarantee $23,000
Assessable Division 293 Income $273,000
Less: threshold ($250,000)
Assessable excess – $23,000
Division 293 assessed liability $3,450 ($23,000 x 15%)
The ATO independently calculate your Division 293 tax liability based on the data they receive from both your superannuation fund and income tax return. They will subsequently issue a notice of assessment to advise of the additional tax.
The tax payer can choose to either pay the Division 293 liability personally, or have their superannuation funds pay the additional tax.
If you think Division 293 may be on your radar, please do not hesitate to touch base to discuss further.
