How to avoid Division 293 tax?

How to avoid Division 293 tax You can’t really avoid division 293 tax but there may be some limited opportunities to minimise your taxable income to get below the division 293 threshold. You only need to exceed the threshold by as little as $1 to be subject to division 293 tax. There is no sliding scale and the definition of “adjusted taxable income” is particularly wide and purposefully designed to stop avoidance of division 293 tax.

What is division 293 tax?

It is part of the Tax Act and is an additional tax of 15% imposed on high income earners on their superannuation concessional contributions.

Effectively, 30% is levied on concessional contributions made by or on behalf of a SMSF member who exceeds the $250,000 threshold.

The division 293 threshold of $250,000 includes your combined “adjusted taxable income” and your “low tax contributions”. Generally, your division 293 threshold includes your taxable income plus rental losses and your superannuation concessional contributions.

The Australian Taxation Office (ATO) use your personal tax return and contribution information reported by all of your super funds to determine if you are liable to pay division 293 tax.

What is adjusted taxable income?

It includes:

your taxable income
reportable fringe benefits (included on your PAYG payment summary)
net investment losses
net amount on which family trust distribution tax has been paid

Hint – one-off events can cause your taxable income to be much higher than normal such as making a taxable capital gain or receiving an eligible termination payment or being paid your accrued annual leave or other employment entitlements when retiring or changing jobs.

What are low tax contributions?

concessional contributions made during a financial year including catch-up contributions
excludes excess contributions outside of a member’s concessional contributions cap

What contributions does division 293 tax apply to?

How to avoid Division 293 tax? Your division 293 super contributions are made up of employer contributions which include salary sacrifice contributions, voluntary contributions, superannuation guarantee contributions (SGC) and award contributions and also member concessional contributions where the member claims a tax deduction in their personal tax return. Excess concessional contributions are excluded from calculating the division 293 super contributions.

Division 293 tax applies to the lesser off:

division 293 super contributions; or
the amount above the $250,000 threshold

1.0 An example based on the ATO – Division 293 tax calculation

Jan’s Division 293 income is $240,000 and Division 293 super contributions are $15,000. This is a total of $255,000.

Division 293 taxable contributions are the lesser of Division 293 super contributions ($15,000) or the amount above the $250,000 threshold ($5,000).

Jan’s Division 293 tax payable is 15% of $5,000. So, the Division 293 tax payable is $750.

Jan pays contributions tax of 15% x $10,000 =$1,500 plus 30% x $5,000 = $1,500. Thus, the total tax payable on her $15,000 concessional contributions is $3,000.

2.0 Example of Division 293 tax not applying

Jan’s Division 293 income is $240,000 and her Division 293 super contributions are $8,000 and she has no other income.

Division 293 tax is payable on the lesser of:

$248,000 – $250,000 = 0 (cannot be less than zero), and
$8,000.

Jan does not incur Division 293 tax.

3.0 Example of 30% tax payable on all concessional contributions

Jan has taxable income of $225,000 which includes total employment income of $260,000, interest of $15,000 with tax deductions of $50,000 including a net rental loss of $30,000. Jan’s employer contributed $28,600 to her SMSF.

Her division 293 income is $225,000 + $30,000= $255,000 and her Division 293 superannuation contributions are $28,600.

Division 293 tax is payable on the lesser of:

$283,600 – $250,000 = $33,600
$28,600

Jan pays 30% tax on all of her concessional contributions being 30% x $28,600 = $8,580

Made up of:

15% contributions tax on $28,600 = $4,290
15% division 293 tax on $28,600 = $4,290
total tax of $8,580

Hint – a common strategy is to reallocate excess concessional contributions made in June to the next financial year. The excess concessional contribution is not disregarded for the purposes of the division 293 calculation i.e. excess employer contributions made on 15^th June 2024 and counted or reallocated to July 2024 (the 2025 financial year) are added back in the 2024 year in relation to the division 293 calculation. These contributions are not caught as excess concessional contributions but are included in the division 293 calculation.

What can you do to reduce your Division 293 income?

Timing is an important consideration. For instance, postponing the sale of a property until the 1st of July can defer a capital gain to the next financial year. Similarly, arranging for employment entitlements to be paid in the following financial year after retirement or changing jobs can reduce your taxable income in that year.

Other considerations include:

Balancing tax savings with deductible expenses.
Ensuring expenses lower your division 293 income below the threshold.
Ensure capital gains or employment entitlements are not put at risk when postponing the payment or event.

How do you pay Division 293 Tax?

It can be paid personally, or it can be released from your SMSF.

The Division 293 tax must be paid to the ATO within 21 days of receiving the assessment notice regardless of if it being paid personally or you elect for your SMSF to release it.

A SMSF member has 60 days to make an election which can be done through your MyGov account or your superannuation administrator or tax agent.

After receiving a release authority, a SMSF has 10 days to release the money to the ATO.

The ATO processes the release authority and has 3 – 5 business days to offset the balance against any tax or Government debt and the remainder is remitted to the member.

Hint – Your SMSF cannot pay the ATO until a release authority is received, usually electronically. Although a SMSF has 60 days to make an election, the tax must be paid within 21 days of the assessment. Timing is essential to avoid penalties.

Should a high-income earner still make concessional contributions?

High-income earners may still find concessional contributions advantageous, given their top marginal tax rate of 45% (or 47% including Medicare) compared to a concessional contributions tax rate of only 30%. Accumulating more funds in superannuation provides access to concessional tax breaks on the fund’s income, as opposed to investing post-tax money outside the superannuation system. The earnings of a Self-Managed Super Fund (SMSF) are taxed at 15% or potentially reduced to zero if the fund is in full pension mode.