A quick and straightforward guide on Division 293 tax
24 September 2020
What is Division 293 Tax?
Division 293 tax applies to specific ‘concessional contributions’ (CCs) made when your income from particular sources exceeds a specified threshold. In 2020/21, this income limit is $250,000.
Concessional contributions include:
- Employer contributions, such as superannuation guarantee amounts
- Pre-tax contributions you make your salary or wage, known as salary sacrificed amounts, and
- Personal contributions that you claim a tax deduction for.
Caps apply to the amount of CCs. The current cap for the year 2020/21 is $25,000. Your cap could be higher if you have ‘carried forward’ CC amounts available, which has the effect of increasing your annual CC limit.
What contributions attract Division 293 tax?
If your income exceeds the income threshold of $250,000 (in 2020/21), any CCs received by your fund up to your CC cap will attract Division 293 tax. Remember the general cap annual cap is $25,000 in 2020/21, but your actual CC cap might be higher if you are eligible to use any ‘carried forward’ CCs. If you have made CCs above your cap, Division 293 tax isn’t payable on these amounts, as they are taxed as personal income.
What is income for the $250,000 threshold?
Income for this purpose is defined as:
- Taxable income
- Total reportable fringe benefits
- Net financial investment losses
- Net rental property losses
- Net amount on which family trust distributions tax has been paid, and
- ‘low rate super contributions’, which are CCs within the person’s CC cap.
One-off events, such as receiving a redundancy or termination payment, or selling an asset and realising a large capital gain, you will have to pay Division 293 tax.
Also note, Concessional contributions may still be worthwhile depending on your situation even if you have to pay extra tax.
The information contained in this article if information only and should not be taken as financial advice.