If you're a high-income earner, it's crucial to be aware of the potential implications of the Division 293 tax when making super contributions.

This particular tax, often referred to as the Division 293 tax, is an additional tax charge on super contributions made by those with higher incomes. Its purpose is to balance the tax advantages that high-income earners derive from the super system, ensuring tax concessions are more equitably distributed among all income levels, including average income earners.

Starting from 1 July 2017, the threshold for combined income and super contributions for Division 293 tax was reduced to $250,000. For context, from 1 July 2012 up until 30 June 2017, the income threshold stood at $300,000.

It's important to understand the government's perspective on this change. Their decision to reduce the Division 293 tax threshold wasn't aimed at boosting tax revenue. Instead, it was intended to ensure tax concessions within the superannuation system remained fair and sustainable. By adjusting the threshold, the goal was to align the tax benefits provided to high-income earners more closely with the benefits offered to low and middle-income Australians.

Understanding the Division 293 tax threshold

An individual's combined income and specific super contributions are evaluated against the Division 293 threshold. If this combined total surpasses the threshold, the Division 293 tax applies. However, the tax is levied on either the amount exceeding the threshold or the super contributions themselves, depending on which amount is lesser. It's essential to note the tax rate for Division 293 purposes is set at 15%.

How Division 293 tax is calculated

To determine if you're subject to Division 293 tax, you'll need to look at your tax return, which helps in establishing your Division 293 income and contribution data from your super fund to identify the Division 293 super contributions.

Only after gathering all the necessary details are Division 293 tax assessments released. It's worth noting that if you're affiliated with multiple super funds and report contributions post the submission of your tax return, an updated Division 293 tax assessment might be issued.

The Division 293 tax becomes applicable if there are taxable super contributions within a financial year. The criteria for taxable super contributions include:

• Having concessional contributions, which encapsulate employer contributions, SG contributions, salary sacrifice contributions, and individual deductible contributions. This also considers specific superannuation rollover benefits, subtracting any excess concessional contributions.
• When the sum of your Division 293 income and super contributions surpasses the $250,000 threshold.

In terms of the rate, the Division 293 tax amounts to 15% of either the amount that exceeds the threshold or the taxable super contributions, depending on which is lower.

Division 293 income components

The income aspect of the Division 293 tax assessment draws from the same income calculation used for the Medicare Levy Surcharge (MLS), but it excludes any reported superannuation contributions. This combined income calculation includes taxable income, total reportable fringe benefits, and assessable income, ensuring that high-income earners are accurately assessed for the Division 293 tax.

Here's a breakdown of the components involved in this income calculation:

Taxable income

Taxable income is derived by subtracting allowable deductions from assessable income. For more on tax thresholds read our article here.

Reportable Fringe Benefits

The entire amount of fringe benefits is taken into account. Read our article What is FBT? to learn more.

Net financial investment loss

This considers losses from financial investments.

Net rental property loss

Any losses incurred from rental properties are included.

Family trust distribution tax

This involves the net amount on which the family trust distribution tax has been paid. If you want to learn more about Family Trusts, visit our service page for Setting up a Family Trust.

Super lump sum

Only the taxed elements with a zero tax rate are considered.

First home super saver released amount

This refers to the assessable amount released for first home purposes.

To derive the total income amount used for Division 293 tax purposes, these components are summed up. However, it's important to note the super lump sum and the assessable first home super saver released amount are subtracted from the total.

Special one-off events

While your regular income might not typically surpass the Division 293 threshold, specific events can elevate your income beyond this limit for a given year.

Consequently, Division 293 tax might be applicable to you for a singular year if:

• You obtain an eligible termination payment
• There's a realisation of a capital gain
• For any other reason, your income witnesses an uptick

Understanding super contributions relevant to Division 293

For Division 293 tax calculations, the contributions that are factored in are your concessional contributions. However, any excess concessional contributions are excluded.

It's essential to recognise that if there's an increase in your concessional contributions cap due to the incorporation of carried-forward amounts, all the contributions within this elevated cap value are considered for Division 293 purposes.

Read our article "Bring forward rule explained" to learn more about concessional contributions.

Division 293 tax and your super contributions

It's crucial to differentiate between your taxable super contributions and your Division 293 super contributions. The taxable contributions are determined as the lesser value between your Division 293 super contributions and the amount surpassing the threshold.

Contribution rules for Division 293 purposes

Contrary to excess contributions, there isn't any flexibility to overlook or adjust contributions when computing the Division 293 tax.

If you make a request (and if it's approved) to have your excess concessional contributions either disregarded or moved to a different year, these contributions will maintain their concessional tax status and must be reintegrated into the Division 293 assessment.

Understanding when and how to pay division 293 tax

For accumulation members

If you're part of an accumulation fund, the ATO will send you a notice of assessment. Along with it, they'll provide a release authority, which lets you use funds from your super account to cover all or part of the tax obligation. To use your super account for this tax, you'll need to hand over the release authority to your super fund within 120 days. After this duration, the super fund isn't required to process the payment. Of course, you also have the option to handle the tax using your non-super funds.

If you decide to give your super fund the release authority, they have a month to manage the tax payment, either to you or directly to the ATO, based on your choice. However, it's vital to note this tax is typically due 21 days post the issuance of the notice of assessment. If it's not paid by then, it's subject to the general interest charge. Hence, you might find it more convenient to pay the tax through your non-super funds first and then ask your fund for reimbursement through the release authority.

Read our article what is a notice of assessment to learn more.

For defined benefit members

Members of a defined benefit super fund often see their tax payment postponed. This postponed amount gets recorded in a debt account overseen by the ATO. Each year, this account accumulates interest at the long-term bond rate. But if you clear the outstanding balance before a financial year concludes, you won't see any interest applied for that specific year.

The tax becomes payable only when a benefit related to your defined benefit fund membership is disbursed. However, you're free to pay this amount whenever you prefer, either from accounts outside your super fund or from any accumulation accounts within your super fund. When a defined benefit membership-related benefit is released, both you and the super fund have a responsibility to inform the ATO. The ATO, in response, will issue a notice detailing the owed amount. This amount should be cleared within 21 days of the benefit's payment. To ensure the fund handles the tax payment to the ATO on your behalf, notify the ATO promptly. This way, they can send the notice ahead of the fund's benefit distribution.

For those with an accumulation account, remember any tax designated to this account needs clearance within 21 days following the notice of assessment's issuance.

For temporary residents

Temporary residents in Australia can look forward to a refund for any paid Division 293 tax if they obtain a Departing Australia Super Payment where withholding tax is relevant. The refund amount encompasses all Div 293 tax payments made during your time as a temporary Australian resident.

To get this refund, you'll need to submit an application to the ATO using their specified form. For more details and to download the necessary paperwork, it's recommended to visit the ATO's website.

Super Guarantee amnesty contributions and Division 293

Contributions made under the Super Guarantee (SG) amnesty are exempted when determining your Division 293 income and concessional contributions for Div 293 tax purposes. This means, for high income earners, these contributions don't influence the Division 293 threshold or the total assessable income for Div 293 tax.

Typically, these SG amnesty contributions are already filtered out from your Div 293 calculation, ensuring they don't impact your taxable contributions. When you receive your Division 293 notice of assessment, you can view the detailed breakdown on page three. Under the section titled 'Division 293 super contributions', any SG amnesty amounts excluded will be listed as a 'Transferred to reserves strategy'. This value is then deducted from your overall concessional contributions.

Should you find discrepancies or disagreements with your assessment, lodging an objection is an option available to you.

There's an important caveat to consider: if your employer made contributions under the SG amnesty and subsequently claimed a Late Payment Offset (LPO), these amounts might not have been excluded from your Div 293 tax calculation. If you suspect your Division 293 assessment inadvertently includes these LPO amounts from the SG amnesty, there's no need for a full-fledged objection. Instead, a more streamlined review of your assessment can be requested.

To initiate this, you'll need to be aware of the financial year in which the LPO sum was added to your fund. If this information isn't readily available to you, consult your employer. With this year in mind, it serves as the reference point for reviewing your Division 293 calculation.

Remember, the Division 293 tax is targeted at higher income earners to ensure the tax concessions they receive on their super contributions are in line with those received by average income earners. Regularly reviewing your assessments and understanding the nuances of contributions can save potential complications down the road.

Read our Guide to Super Guarantee Charge to learn more.

Releasing money from super for a Division 293 tax liability

For those high income earners facing a Division 293 tax liability, an option is available to ease this financial obligation. You can choose to release funds from your superannuation to settle this liability. Here's a step-by-step guide:

Submission of election form

Start by completing the Div 293 election form. Ensure you do this within 60 days from when you receive your Division 293 tax assessment. Although this 60-day window offers you more time to decide on releasing money from super, it doesn't extend the payment deadline for the Division 293 tax liability itself. Regardless of your decision to release funds, the pay tax date remains the same, as indicated on your notice of assessment.

Online lodgement

The most efficient way to submit your Division 293 election form is online. Doing so ensures an immediate lodgment.

Processing of election form

Once the ATO has received a completed form, they will liaise with your specified super fund(s). The ATO provides the specified super fund(s) with a release authority instructing them to remit the amount you've indicated. These funds will be allocated first toward settling your outstanding Division 293 tax. If there's any surplus after this, it will be directed toward settling other tax obligations and Australian Government debts. Should there still be a balance post these deductions, it will be refunded to you.

Irrevocability of election

It's imperative to understand that once you've made this election, the decision is binding. It cannot be reversed or retracted at a later date.

Remember, the Division 293 tax targets those whose combined income and super contributions exceed a specific threshold, often referred to as the Division 293 threshold. This tax mechanism ensures that higher income earners receive comparable tax concessions on their super contributions, relative to average income earners. The initiative seeks to balance the tax benefits of superannuation contributions for all contributors, regardless of their taxable income bracket.