The basic tax rate applied to concessional contributions to superannuation funds is 15%. Concessional contributions include the compulsory superannuation guarantee on an employees wage (11.5% from 1 July 2024), as well as any contributions made directly by an individual and claimed as a deduction in their personal tax return. Concessional contributions also includes any salary sacrifice arrangements.

What catches a lot of people by surprise is that the 15% rate will become 30% in a very specific circumstance. These rules are known as the Division 293 rules.

What is Division 293?

Division 293 of the Income Tax Assessment Act 1997 (ITAA 1997) is an Australian tax law provision aimed at reducing the tax concessions on superannuation contributions for high-income earners. It was introduced to address the disparity in tax benefits received by higher-income earners compared to lower-income earners.

Here are the key points about Division 293 tax:

  1. The tax applies to individuals whose adjusted taxable income exceeds a certain threshold. Initially, this threshold was set at $300,000 but has been reduced to $250,000.
  2. Individuals whose income and superannuation contributions exceed the threshold are required to pay an additional 15% tax on their concessional (before-tax) superannuation contributions. This is on top of the 15% tax already paid on these contributions by the superannuation fund, effectively bringing the total tax rate to 30% on these contributions for high-income earners.
  3. For the purposes of Division 293, the adjusted taxable income includes taxable income, reportable fringe benefits, and total net investment losses, among other things. It also includes concessional superannuation contributions.

The intent behind Division 293 is to make the superannuation system fairer by ensuring that high-income earners do not receive disproportionate tax benefits compared to lower-income earners.

Is there a way to avoid Division 293?

Unfortunately there isn’t an easy way. In reality the only way is to ensure that your adjusted taxable income does not exceed the threshold. If you are a wage earner, you often have the sold objective of increasing your salary – not decreasing it. If your salary is already over $250,000 then there is no way to get under the threshold. If you run your own business, then you may be able to manipulate your salary so that you fall under the threshold. Careful consideration will need to be made towards the other factors that calculate adjusted taxable income however.

How to pay Division 293 tax?

If you are unfortunate enough to receive a Division 293 assessment, the law allows this extra tax to be released from your superannuation fund to meet this debt. Another alternative for payment is that the individual can make the payment from their personal funds.

If you have any queries in relation to a Division 293 assessment, or planning in regards to this, please contact Diana at The SMSF Accountant.