As a reminder, when concessional contributions are made into your super fund, commonly being amounts paid by your employer from your before-tax income or a personal contribution that you are claiming a tax deduction for in your personal tax return, they are generally taxed at a reduced rate of 15% – which can be a great benefit depending on your marginal tax rate.
You may already be aware that should your total concessional contributions in each year be in excess of the concessional contributions cap (which is $25,000 at the time of this writing), the Australian Tax Office (ATO) will levy additional tax on the excess amount. If you are a high income earner, what you may not be aware of, is that you may also be liable to pay additional tax (Division 293 tax) should your income exceed a certain threshold, which currently stands at $250,000.
The Division 293 tax amount is calculated based on your income for Medicare levy surcharge purposes¹ (which includes your reportable super contributions for the year, and can also include income from sources other than employment, such as investments) minus any excess concessional contributions above the cap. Should this exceed the current threshold, you will be taxed an additional 15% on the lower of:
- The excess amount over the threshold, or;
- Your concessional contributions up to the current cap amount (remember that the ATO already levies additional tax on contributions that exceed the concessional contributions cap, separate to Division 293 tax)
Even though your personal income and concessional super contributions may not normally exceed the Division 293 threshold, there may be certain irregular events that apply to you, which could result in Division 293 tax being levied for that particular year, such as:
- You’ve received a salary bonus
- You’ve received an employee termination payment, which can include unused leave, redundancy and severance pay
- You’ve made a significant capital gain during the year
How will I know if I’ve been levied Division 293 tax?
To determine whether you’re liable for Division 293 tax, the ATO will derive information based on what has been reported in your individual tax return and information provided by your super fund, after which they will send you a notice of assessment to your myGov inbox (or your registered tax agent) that will indicate whether you’ve been levied additional Division 293 tax.
You have the option of paying this additional tax liability either one of two ways:
- You can pay it yourself personally, or;
- You can elect to have the amount released from your balance in the super fund
What should I do if I think I’ve been levied Division 293 tax incorrectly?
Generally, errors may have occurred due to mistakes in your personal tax return, or information misreported by your super fund. Should this be the case, you will have to either amend your tax return or get in touch with your super fund! Once the ATO receives any new information that changes your eligibility to pay Division 293 tax, your notice of assessment will be subsequently updated.
If you have any questions or concerns regarding Division 293 tax, please don’t hesitate to seek specialist advice.
¹ For more information on working out your income for Medicare levy surcharge purposes, see https://www.ato.gov.au/Individuals/Income-and-deductions/Income-tests/#Income_for_surcharge_purposes