Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 291

Is a Division 293 tax notice coming your way?

From 1 July 2017, the income threshold above which individuals pay an additional 15% tax on certain superannuation contributions reduced from $300,000 to $250,000. In December 2018, the ATO began issuing over 90,000 Division 293 notices for the 2017/18 income year. It is estimated that approximately 44,000 individuals will receive their first Division 293 notice early in 2019.

Importantly, there are no strategies that can be used to reduce an individual’s liability for Division 293 tax. However, understanding the options that are available and how the Division 293 notice process works will assist individuals who receive a notice.

Overview to the lower income tax threshold

People with Division 293 income greater than $250,000 will pay 15% additional tax on certain superannuation contributions. The tax is a personal tax rather than a tax deducted from super contributions by a fund. However, individuals may elect to release funds from super to pay the tax (see the Choices section below).

Division 293 income includes taxable income, reportable fringe benefits and total net investment losses.

Individuals who are not generally high-income earners may still be liable for Division 293 tax if they receive certain one-off payments during a year. Such payments include eligible termination payments, the taxable component of a superannuation death benefit and capital gains.

However, the taxable component of a super lump sum benefit (other than a death benefit) is not included where it is received by individuals from preservation age to age 59, and it is up to the current low-rate cap of $205,000.

Division 293 contribution definitions

Division 293 contributions include:

  • employer contributions
  • personal deductible contributions
  • contributions for a defined benefit interest (valued by an actuary)
  • employer contributions (including salary sacrifice) to a constitutionally protected fund

The additional tax does not apply to:

  • excess concessional contributions
  • non-concessional contributions
  • contributions to certain Government funds for senior personnel, unless they are salary sacrifice contributions
  • contributions for certain Judges to defined benefit funds

Division 293 tax is 15% of the lesser of the amount of the Division 293 contributions and the amount of Division 293 income and Division 293 contributions above the $250,000 threshold.

Case study

Bill has Division 293 income of $240,000 and Division 293 contributions of $20,000, totalling $260,000. Division 293 tax is therefore payable on $10,000, being the lesser of $20,000 or $260,000 - $250,000 = $10,000. The Division 293 tax amount is 15% of $10,000 or $1,500.

Division 293 notice and choices

The ATO issues an Additional tax on concessional contributions (Division 293) notice to individuals which specifies the additional amount of tax that is payable and the due date for payment. The ATO has recently redesigned the Division 293 notice to provide information clearly and concisely. This includes providing the full assessment calculation to make it easier for people to understand how their tax has been calculated. This will also make it easier to identify any erroneous assessments due to incorrect reporting of information.

When an individual receives a Division 293 assessment, they can choose to pay the tax from their personal resources. Alternatively, they can elect to have the amount released from their super fund to pay the tax. The timeframe for making the election is 60 days. However, this may be a greater time frame than the date upon which payment of the tax is due.

The election can be made to release the tax amount from any super fund (other than some defined benefit funds). There is no requirement for the release to be made from the fund that received the contributions.

If an election to have the amount released from super is made, the ATO will send the super fund a release authority and the fund will make the payment to the ATO. Funds are required to make the payment within 10 business days from the date the release authority is issued by the ATO.

Importantly a fund must not release an amount until they have received the ATO release authority. This requirement is sometimes misunderstood by SMSF trustees.

Conclusion

Understanding the choices available and the process involved in paying Division 293 tax can assist in ensuring that any tax payable is completed in a manner most appropriate to an individual’s circumstances.

 

Julie Steed is Senior Technical Services Manager at Australian Executor Trustees. This article is in the nature of general information and does not consider the circumstances of any individual.

RELATED ARTICLES

Beware Division 293 tax on superannuation contributions

Why extra super contributions tax may catch you too

Zero tax rate on pensions is right and fair

banner

Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Betting markets as election predictors

Believe it or not, betting agencies are in the business of making money, not predicting outcomes. Is there anything we can learn from the current odds on the election results?

Welcome to Firstlinks Election Edition 458

At around 10.30pm on Saturday night, Scott Morrison called Anthony Albanese to concede defeat in the 2022 election. As voting continued the next day, it became likely that Labor would reach the magic number of 76 seats to form a majority government.   

  • 19 May 2022

Latest Updates

Superannuation

'It’s your money' schemes transfer super from young to old

With the Coalition losing the 2022 election, its policy to allow young people to access super goes back on the shelf. But lowering the downsizer age to 55 was supported by Labor. Check the merits of both policies.

Investment strategies

Rising recession risk and what it means for your portfolio

In this environment, safe-haven assets like Government bonds act as a diversifier given the uncorrelated nature to equities during periods of risk-off, while offering a yield above term deposit rates.

Investment strategies

‘Multidiscipline’: the secret of Bezos' and Buffett’s wild success

A key attribute of great investors is the ability to abstract away the specifics of a particular domain, leaving only the important underlying principles upon which great investments can be made.

Superannuation

Keep mandatory super pension drawdowns halved

The Transfer Balance Cap limits the tax concessions available in super pension funds, removing the need for large, compulsory drawdowns. Plus there are no requirements to draw money out of an accumulation fund.

Shares

Confession season is upon us: What’s next for equity markets

Companies tend to pre-position weak results ahead of 30 June, leading to earnings downgrades. The next two months will be critical for investors as a shift from ‘great expectations’ to ‘clear explanations’ gets underway.

Economy

Australia, the Lucky Country again?

We may have been extremely unlucky with the unforgiving weather plaguing the East Coast of Australia this year. However, on the economic front we are by many measures in a strong position relative to the rest of the world.

Exchange traded products

LIC discounts widening with the market sell-off

Discounts on LICs and LITs vary with market conditions, and many prominent managers have seen the value of their assets fall as well as discount widen. There may be opportunities for gains if discounts narrow.

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.