An extra 15% on certain super contributions once your income and contributions pass $250,000.
Super contributions made through salary sacrifice or employer contributions are normally taxed at a concessional 15% inside the fund, which is well below most people's marginal tax rate. Division 293 tax exists to trim that concession back for high-income earners, on the basis that the gap between 15% and their marginal rate is otherwise very large. If your income is approaching the top tax bracket, it is worth understanding how it works.
According to the ATO's Division 293 information, the tax can apply where an individual's combined income and concessional contributions for Division 293 purposes are more than $250,000. The ATO takes your income for surcharge purposes and adds your low-tax (concessional) super contributions. If that combined total is above $250,000, Division 293 may apply to some or all of your contributions.
The rate is 15%, charged on the lesser of two amounts: the part of your combined income and contributions that sits above the $250,000 threshold, or your taxable super contributions for the year. You pay 15% on whichever figure is smaller. That extra 15% sits on top of the standard 15% contributions tax, which is why Division 293 is often described as taking the effective rate on affected contributions to 30%.
| Step | What the ATO looks at |
|---|---|
| 1. Combine | Income for surcharge purposes plus low-tax super contributions |
| 2. Compare | Is the combined figure above $250,000? |
| 3. Take the lesser of | Amount over $250,000, or your taxable super contributions |
| 4. Apply | 15% Division 293 tax on that lesser amount |
You do not work this out yourself. Once the ATO has both your income tax return and the contribution information reported by your super fund, it calculates whether Division 293 applies and issues an assessment notice. When you receive it, you can pay from your own money or elect to release an amount from your super fund to cover the bill. The release option lets the tax be paid from the contributions that triggered it, rather than from your everyday cash flow.
Even with the extra 15%, concessional contributions can still be more tax-effective than taking the same income as salary at the top marginal rate. Whether it makes sense for you depends on your full circumstances, so this is an area where personal advice is valuable.
Disclaimer: This article is general information, not tax or financial advice. Thresholds and rules can change. Confirm the current position with the ATO and seek advice for your own circumstances.