At Hoffman Kelly, we understand that taxes can be confusing and overwhelming. That’s why we broke down what Division 293 Tax is and how it may affect you.
What is Division 293 Tax?
Division 293 Tax, also known as the Additional Tax for High Income Earners, is a tax imposed on concessional superannuation contributions for individuals with income above a certain threshold. Currently, that threshold is set at $250,000 for the 2022-2023 financial year.
The threshold includes not only taxable income but also reportable fringe benefit amounts, net financial investment losses, net rental property losses and employer and personal super contributions for which a deduction has been claimed.
How can it impact you?
Triggered by high wages or a large capital gain on a property, for instance, where it applies Division 293 means an additional 15% tax will be payable on concessional superannuation contributions. So, if you make $27,500 of concessional super contributions in a year your super fund will pay the normal 15% contributions tax, but you will then get a notice for an additional 15% tax of $4,125 sent to you.
It is important to note that the threshold for Division 293 Tax is not adjusted for inflation, so over time more individuals may become liable for the tax. Additionally, the threshold is not indexed to average earnings or other measures of inflation, meaning that more taxpayers may become liable for the tax as incomes grow.
When will it be applied?
The Australian Taxation Office (ATO) will issue a notice for the additional tax on concessional contributions shortly after your tax return is lodged.
What to do once a letter is received?
Once the notice is received, Hoffman Kelly recommends going through the following steps:
- Review the letter carefully to ensure that the taxable income used to calculate the tax is correct.
- Check the superannuation contributions that are included in the calculation of Division 293 Tax.
- Seek professional advice if you are unsure about any aspect of the letter, or if you believe that the taxable income used to calculate the tax is incorrect.
- It is also possible to request a review of the ATO’s decision if you are not satisfied with the outcome.
- Pay the tax liability on time, as failure to do so may result in additional penalties and interest charges.
What are my payment options?
High-Income Earners have two payment options;
- Pay with your own money, or
- Release money from your superannuation fund by completing a Division 293 election form.
It is important to highlight that the election form is only valid for 60 days, after which, the payment can only be made personally.
Need help navigating and calculating the Division 293 tax? Contact us today!