Division 293 tax was introduced in 2012 by the Australian Taxation Office (ATO) that applies to individuals with income above a certain threshold. It imposes an additional 15% tax on concessional (pre-tax) superannuation contributions for those exceeding the threshold, affecting the amount of contributions taxed at the standard rate.
Who Needs to Pay Division 293 Tax?
You may be required to pay Division 293 tax if your combined income and concessional super contributions exceed $250,000 in a financial year. This income threshold determines who is subject to the tax, and it includes not only your salary but also additional income types that contribute to the threshold calculation.
Types of Income and Contributions Considered for Div 293
The ATO considers a range of income sources when calculating the $250,000 threshold, such as:
- Salary and wages
- Bonuses, allowances, and fringe benefits
- Investment income, such as dividends and rental profits
- Employer super contributions and salary sacrifice contributions
- One-off income such as capital gains
It’s worth noting that investment loss, such as negative gearing on rental properties, is not accounted for in the above income calculation.
How Does Division 293 Tax Impact Your Superannuation?
When Division 293 tax applies, it affects your concessional (pre-tax) superannuation contributions. Concessional contributions, such as employer contributions and salary sacrifice amounts, are normally taxed at 15%. However, with Division 293 tax, individuals who exceed the income threshold will face an additional 15% tax on their concessional contributions, bringing the total tax on those contributions to 30%.
Super Fund Adjustments
If you are subject to Division 293 tax, your superannuation fund will be required to pay the additional tax. This may result in a reduction in your super balance, as the tax is deducted from your superannuation account. The super fund will calculate and report the tax payable based on your concessional contributions and income for the relevant year.
Strategies for Minimising Division 293 Tax
- Review Your Income Sources: Assess all your income streams carefully and manage any additional and/or one-off earnings to help stay below the $250,000 threshold, where possible.
- Optimise Salary Sacrifice Contributions: Work with a financial advisor to restructure your salary sacrifice arrangements, potentially reducing your taxable income.
- Bring Forward Deductions: For a year with one-off income, consider prepaying eligible expenses for the following year to claim deductions this year, provided next year’s income can stay below the threshold even without these deductions.
Impact on Financial Planning and Retirement Goals
Since Division 293 tax directly affects the net value of your super contributions, it can influence your retirement savings and financial planning. You may need to adjust your contribution strategies or explore additional retirement investment options to stay on track. Consulting a financial advisor can be helpful to ensure that your retirement goals are still achievable despite this tax.
FAQs About Division 293 Tax
Does Division 293 tax apply to my entire super balance?
- No, Division 293 tax only applies to concessional (before-tax) contributions for high-income earners in the relevant year, not the entire super balance.
What if my income fluctuates around the $250,000 threshold each year?
- The ATO assesses Division 293 tax annually based on your income and contributions for that year, so if your income dips below $250,000, you won’t be subject to this tax for that year.
Can I pay Division 293 tax from my super fund?
- Yes, you can elect to pay this tax from your super fund by completing an election form provided by the ATO.
We’re here to help
At Chan & Naylor, we’re here to make it simpler for you. Our experienced tax professionals can provide tailored advice to help you manage Division 293 Tax efficiently and ensure you’re making the most of your super contributions. Whether you have questions about your tax notice or want to strategise around your contributions, we’re ready to assist. Reach out to us at Chan & Naylor for guidance on your tax obligations and planning for a financially secure retirement.
About Chan & Naylor
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Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
