Curious about Division 293 and how it impacts your super? Wondering how it works and whether it applies to you? Let’s dive in and break it down in simple terms, so you can get a clear understanding of how it all works! 😎
What is Division 293?
In simple terms, if your income is high and you’re putting a lot into your super, Division 293 applies an extra tax on those contributions.
It adds an extra tax on concessional (pre-tax) super contributions. So, if your income is above a certain threshold, you might have to pay this additional tax. It’s the ATO’s way of balancing out the tax advantages of super contributions for high-income earners.
How does it work?
If your combined income (including your super contributions) is over the threshold (currently $250,000) you'll pay an additional 15% tax on the amount of your concessional contributions that exceed this threshold. This is on top of the standard 15% tax rate that super contributions usually attract.
So, if you’re a high-income earner, it’s worth keeping an eye on your super contributions to manage this extra tax.
What are Concessional Superannuation Contributions?
Concessional super contributions are payments made into your super fund from your pre-tax income, including your employer’s super guarantee (SG) contributions.
Here's how they work:
Before-Tax Contributions: Concessional contributions are made from your pre-tax income. This includes your employer’s contributions (like Superannuation Guarantee payments) and any additional contributions you make yourself (like salary sacrifice).
Tax Rate: These contributions are taxed at a flat rate of 15% when they enter your super fund, which is generally lower than your marginal income tax rate.
Caps: There’s a limit on how much you can contribute this way each financial year without facing extra tax. From 1 July 2024, the general concessional contributions cap is $30,000 for all individuals regardless of age.
How to Pay you Division 293?
If you’ve received a Division 293 letter and bill after lodging your tax return, you have a couple of ways to pay it:
Paying from Your Own Funds
The letter you received will include all the payment details you need. Simply follow those instructions to make your payment.
Using Your Superannuation Balance
If you'd rather use your super balance to cover the bill, you'll need to complete an election form. You have up to 60 days from the date of your Division 293 assessment to make this election. Here’s how you can do it through myGov:
Log into your MyGov account.
Go to ATO online services.
Select Super, then Manage, and then Division 293 election.
Dill out the form and click Submit.
If you’re having trouble accessing myGov, no worries! You can fill out and submit a Division 293 tax due and payable election form directly to the ATO instead.
We've got some examples for you! ✨
Example 1:
Let’s say you earn a salary of $225,000, and your employer puts $24,750 into your super. If you have no other income for Div. 293 purposes, the Div. 293 tax is based on the lesser of these two amounts:
$249,750 (which is your salary plus super) minus $250,000 = $0 (you can’t have less than zero), and
$24,750 (your total super contributions).
Since $0 is less than $24,750, you don’t end up paying any Div. 293 tax.
Example 2:
Now, if you also earn $10,000 in interest, your total income goes up to $258,625. For Div. 293, the tax is based on the lesser of:
$259,750 (your total income plus super) minus $250,000 = $9,750, and
$24,750 (your super contributions).
In this case, the first $15,000 of your concessional contributions will be taxed at 15%. The remaining $9,750 will be taxed at 30%, which includes the Div. 293 tax. This means you will have to pay an additional amount of around $1,462.50.
Example 3:
Imagine you earn a total income of $300,000, which includes your salary, interest, a discount on vested employee shares, and concessional contributions. For Div. 293 tax, it’s calculated based on the lesser of:
$300,000 (your total income) minus $250,000 (the threshold) = $50,000, and
$24,750 (your concessional contributions).
In this case, since $24,750 is less than $50,000, all your concessional contributions ($24,750) will be taxed at 30%, which includes the Div. 293 tax. This means you will have to pay an additional amount of around $3,172.50.
Now that you’ve got the basics of Division 293, you’re in a better position to understand how it may affect your super and financial planning. If you’re still unsure or need more personalised advice, don’t hesitate to reach out - we’re here to help you every step of the way! 😊