Are you a High-income earner? Thinking of contributing to super? Read this
Division 293 tax is an additional 15% tax on concessional contributions.
Christopher Wilsmore
When looking at super contributions, a concessional contribution refers to a contribution that can be claimed as a tax deduction by the contributor.
This can encompass mandatory (including Super Guarantee) and voluntary (including salary sacrifice) employer contributions, as well as personal deductible contributions.
The amount of concessional contributions is reduced by a contributions tax of 15%. However, individuals with income and concessional contributions totalling more than $250,000, may have to pay an additional 15% tax (Division 293 tax) on some or all of their low-tax contributions.
Please note:
- Low-tax contributions refer to concessional contributions, such as the abovementioned. Low-tax contributions don’t include excess concessional contributions (those above an individual’s concessional contributions cap, see below), so excess concessional contributions won’t attract Division 293 tax.
- For the 2021-22 financial year, the concessional contributions cap is $27,500. However, depending on an individual’s circumstances, the carry-forward provision can affect this amount—effectively increasing it.
Division 293 tax: The income threshold and definition
For the 2021-22 financial year, the income threshold for Division 293 tax is $250,000.
In terms of income, this includes an individual’s taxable income (which will include any excess concessional contributions), reportable fringe benefits, net investment losses, net family trust distributions for which tax has been paid, and low-tax contributions.
Any super lump sums accessed through the First Home Super Saver Scheme and within the low-rate cap (applicable between preservation age and age 60), are excluded.
However, despite these exclusions, the income definition remains quite broad. As such, one-off events such as selling an asset and realising a capital gain, or receiving a redundancy or termination payment, may see an individual deemed liable to pay Division 293 tax when ordinarily this would not be the case.
Division 293 tax: The calculation and payment of tax
Calculation of an individual’s liability for Division 293 tax resides with the ATO.
The ATO uses information included in an individual’s tax return, as well as their super fund’s contribution reporting. Importantly, upon assessment of this information, if the ATO deems an individual to be liable, then they issue the individual with an ‘Additional tax on concessional contributions (Division 293) notice’.
The individual has two options to pay the tax by the stipulated due date on the notice:
- Make a payment directly to the ATO; or
- Make an election to release the funds from super to pay the tax—this must be done within 60 days of the date of their assessment.
In terms of the amount of tax payable, the additional 15% tax will apply to the lesser of the following two amounts:
- The amount by which the individual’s income and low-tax contributions exceed $250,000; or
- The total of the individual’s low-tax contributions.
Division 293 tax: The building of super wealth moving forward
When considering concessional contributions and the contributions tax payable on them, the contributions tax of 15% can often be lower than an individual’s marginal tax rate.
| Individual resident tax rates (2021-22 financial year) | ||
| Taxable Income | Marginal tax rate* | Tax payable |
| $0 – $18,200 | Nil | Nil |
| $18,201 – $45,000 | 19% | Nil + 19% on each $1 over $18,200 |
| $45,001 – $120,000 | 32.5% | $5,092 + 32.5% on each $1 over $45,000 |
| $120,001 – $180,000 | 37% | $29,467 + 37% on each $1 over $120,000 |
| $180,001 + | 45% | $51,667 + 45% on each $1 over $180,000 |
*The 2% Medicare levy may be in addition to this rate.
Depending on an individual’s circumstances, this can also be the case when considering the additional 15% tax (Division 293 tax), which effectively increases the tax on some or all of an individual’s concessional contributions to 30%—the current top marginal tax rate is 47% (including Medicare levy).
Therefore, if an individual is a high-income earner, it could still be worthwhile for them to consider contributing to super via concessional contributions, such as salary sacrifice and personal deductible contributions.
Lastly, with all discussed above, it’s key to note that special rules can apply for defined benefit funds, state higher level office holders, commonwealth judges and justices, and temporary residents departing Australia.
Next steps
- For those not currently making super contributions, it may be worthwhile considering the long-term benefits of contributing to super—an uplift in super balance come retirement, and subsequent uplift in retirement income (and outcome). Use the Super Contributions Optimiser tool
- For those currently making super contributions, it may be worthwhile considering whether you are appropriately making use of the amount that can be contributed. This could also include an assessment of your eligibility and capacity to do so. Again the Super Contributions Optimiser tool can help
Written and accurate as at: 3 November 2021