Making concessional contributions to your super can not only help to boost your super balance but can also reduce the amount of tax you have to pay on the income you earn. However, if you are a high-income earner, it is important to be aware of the additional tax on super contributions which reduce the tax concessions available to you.
Non-concessional contributions
Super contributions made before tax are taxed within your superfund at a concessional rate of 15% (up to the concessional contribution limit). To read more about what super contributions may be available to you, click here.
Division 293
The Division 293 tax is an additional tax for individuals who have a combined taxable income that exceeds $250,000, which was previously $300,000 before July 1 2017. The 293 tax is charged at 15% of an individual’s taxable income, and therefore reduces the tax concessions for these contributions if your income exceeds the threshold. This tax is payable on top of the standard 15% contributions tax, however, does not apply to non-concessional contributions which are made in excess of the cap of $27,500.
What this means is that if you earn in excess of $250,000 per year, the total tax payable on your concessional contributions before the cap is 30%.
It is also important to note that if you earn below this amount but when combined with your concessional contributions, is more than $250,000, the 30% tax rate will only be charged to the part of your income that exceeds the threshold. If you were to earn $230,000 and made concessional contributions of $25,000, the 30% tax rate only applies to the $5,000 which exceeds the threshold.
| Income Year | Threshold |
| 2017-19 onwards | $250,000 |
| 2012-13 to 2016-17 | $300,000 |
What income is included in the Division 293 tax?
You may be curious on what basis this tax is assessed. The taxable income used to determine if individuals are subject to the Division 293 tax includes the following:
- Taxable income (less deductions),
- Reportable fringe benefits,
- Net financial investment loss,
- Net rental property loss,
- The net amount on which family trust distribution tax has been made.
The concessional contributions which are counted towards the Division 293 tax include the following:
- SG contributions made by your employer
- Salary sacrifice,
- Concessional contributions up to $27,500 as of July 1, 2021
- Defined benefit contributions if you are a member of a defined benefit super fund.
Example:
| Bob | Bob earns a salary of $225,000, with his employer contributing $22,500 into his super, making his total income $247,500. Bob does not make any additional concessional contributions and therefore his total income is within the $250,000 threshold. Bob’s concessional contributions would therefore be taxed at 15%. |
| Mary | Mary earns a salary of $250,000, with her employer contributing $25,000 into her super each year. As her income combined with her SG exceeds the $250,000 threshold, she will be subject to the 15% tax rate as well as an additional 15% on the amount which exceeds the threshold. Therefore, Mary will be subject to pay a 30% tax rate on $25,000. This can be deducted from her super or paid personally. |
Source: mlc.com.au
What do I need to do?
If you think or know that you exceed the threshold of the Division 293 tax, it is for the ATO to determine whether you are required to pay this additional tax. This is based on the information in your tax return and any data they receive from your superfund. The ATO will provide you with a notice of assessment which includes the amount of tax payable as well as the ability for your superfund to release the money in order to pay the tax. Alternatively, the money can be paid for by your non-super savings.
If you would like to discuss what super contributions are available to you or wish to grow your super in a tax effective environment, click here to organise a complimentary 20-minute meeting with an EPG Wealth adviser.
<a href=”https://www.freepik.com/photos/people”>People photo created by 8photo – www.freepik.com</a>