Div 293 Tax: How It Affects High-Income Super Contributions

Div 293 Tax

Superannuation (super) is a vital part of Australia’s retirement income system. It allows you to save money tax-effectively for your golden years. However, for high-income earners, there’s a tax hurdle to consider: Div 293 tax. This tax applies to concessional contributions made by individuals with adjusted taxable income exceeding a certain threshold. Understanding Div 293 tax is crucial for high-income earners to make informed decisions about their super contributions and retirement savings strategy.

What is Div 293 Tax?

Div 293 of the Income Tax Assessment Act 1997 introduces an additional 15% tax on concessional (before-tax) super contributions made by individuals whose adjusted taxable income surpasses a set limit. This tax is on top of the standard 15% contributions tax that everyone pays. In simpler terms, if your income falls above the Div 293 threshold, you’ll effectively pay a 30% tax on your concessional super contributions.

Who is Affected by Div 293 Tax?

Division 293 tax applies to individuals with an adjusted taxable income exceeding $250,000 for the End of Financial Year 2024. It’s important to note that adjusted taxable income considers various factors beyond your base salary, including reportable fringe benefits, deductions, and certain capital gains.

How is Div 293 Tax Calculated?

The Div 293 tax calculation is relatively straightforward. Here’s how it works:

  1. Identify your concessional super contributions: This includes employer contributions, salary sacrifice contributions, and personal deductible contributions.
  2. Determine your adjusted taxable income: This figure is available on your tax assessment notice or can be calculated using your income tax return information.
  3. Check the Division 293 threshold: For the 2024-2025 financial year, the threshold is $250,000.
  4. Calculate the Division 293 tax liability: If your adjusted taxable income exceeds the threshold, the excess amount is subject to the additional 15% tax.

Imagine your adjusted taxable income totals $275,000, and you also contribute $25,000 in concessional super contributions. This means your combined amount reaches $300,000.

Now, Division 293 tax applies to the lesser amount between your concessional super contributions or the excess income above the $25,000 threshold. Here’s how it works step by step:

Step 1

Determine the excess amount: The threshold for Division 293 tax is $250,000. Subtract this threshold from your total adjusted taxable income ($300,000 – $250,000), resulting in an excess of $50,000.

Step 2

Identify the smaller value: Compare your concessional super contributions ($25,000) and the excess amount ($50,000). The smaller of the two is $25,000.

Step 3

Apply the tax rate: Division 293 tax is charged at 15% on the smaller value. In this case, 15% of $25,000 equals $3,750.

Payment Timeframes for Division 293 Tax

1. Accumulation Schemes (e.g., Triple S, Super SA Select, or PSS 3):

  • Payment of Division 293 tax is due within 21 days after the ATO issues a Notice of Assessment.
    • If opting to release funds from your superannuation, the release must occur within 60 days.

2. Defined Benefit Schemes (e.g., Lump Sum Scheme and Pension Scheme):

  • Deferred Debt Account:
    • No immediate payment is required as the liability is deferred until a benefit becomes payable upon cessation of service.Voluntary payments can be made to the ATO, but the deferred debt account will accrue end-of-year interest at the long-term bond rate.

  • Debt Account Discharge Liability: Super SA must notify the ATO within 14 days of your super benefit becoming payable or upon your request for the benefit, whichever occurs first.
    • The ATO will issue a notice calculating the liability, which must be paid within 21 days from the notice date.

Strategies to Minimise Div 293 Tax Impact

While Div 293 tax can reduce the tax benefits of super contributions for high-income earners, there are strategies you can employ to minimise its impact:

Salary sacrifice

Salary sacrificing involves agreeing to receive a lower pre-tax salary in exchange for your employer making larger concessional super contributions on your behalf. This reduces your taxable income, potentially bringing it below the Div 293 threshold.

Spouse contributions

If your spouse earns less than $250,000, you can contribute up to $3,000 per year as a spouse contribution to their super fund. These contributions are tax-deductible for you and count towards your spouse’s concessional contributions limit, potentially helping them avoid Division 293 tax.

Tax-offset investments

Consider investing in deductible investment options outside of super, such as managed funds or exchange-traded funds (ETFs). These investments can provide tax benefits and contribute to your overall retirement savings strategy.

Seek professional advice

Consulting a financial advisor can be beneficial. They can assess your individual circumstances, income levels, and retirement goals and recommend personalised strategies to optimise your super contributions and minimise the impact of Div 293 tax.

Final Remark

Div 293 tax adds a layer of complexity to super contributions for high-income earners. However, by understanding how it works and employing appropriate strategies, you can still leverage super as a valuable tool for building a comfortable retirement nest. Remember, the earlier you start planning and making super contributions, the more time your savings have to grow through compound interest. By taking a proactive approach and potentially seeking professional guidance, you can ensure Div 293 tax doesn’t significantly hinder your long-term retirement goals.

Need guidance on Div 293 tax or other financial strategies? Infinity22 provides expert accounting and tax services, helping Australians optimise their finances and super contributions.

Reach out to us today for personalised advice. Let’s talk and secure your financial future!

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