Understanding Division 293 Tax on Superannuation Contributions
If youre a high-income earner in Australia, you may have heard of division 293 tax. But what exactly is it, and how does it affect your superannuation contributions? Let’s break it down to make it easier to understand.
What is Division 293 Tax?
Division 293 tax is an additional tax applied to high-income earners on their superannuation contributions. Its main goal is to narrow the tax concession gap between lower and higher income earners. Essentially, this tax ensures that those who earn more contribute a fairer share towards their retirement savings.
Who Pays Division 293 Tax?
You might be liable for division 293 tax if your adjusted income exceeds a certain threshold and you make concessional (before-tax) super contributions. These include employer super guarantee contributions or salary sacrifice contributions. If you fall into this category, it’s important to understand how much you could be liable for.
How is Division 293 Tax Calculated?
Standard concessional contributions to super are typically taxed at a rate of 15%. However, if your adjusted income exceeds $250,000, an additional tax applies to concessional contributions above this threshold. The maximum additional tax can be as high as 15% on contributions that exceed the cap.
For example, let’s say your adjusted income is $260,000, and you made concessional contributions of $20,000. If the threshold for additional tax is $250,000, you would be liable to pay division tax on the $30,000 that exceeds this threshold.
How is Division 293 Tax Paid?
The Australian Taxation Office (ATO) assesses your situation and issues a notice of division 293 tax liability. You can choose to pay the tax directly or have it deducted from your super fund using a release authority.
Strategies to Minimise Division 293 Tax
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Review Salary Sacrificing Arrangements: Adjusting your salary sacrifice contributions can help limit your exposure to division 293 tax. Consider whether you need to contribute the maximum amount or if a lower figure would suffice.
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Limit Additional Concessional Contributions: Staying within the concessional contributions cap can help you avoid additional tax.
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Consider Non-Concessional Contributions: After-tax contributions are not subject to division 293 tax, so this could be a viable option for boosting your super.
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Utilise Spouse Super Contributions: Contributing to a lower-earning spouse’s super fund can help balance out contributions and optimise tax benefits.
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Seek Professional Advice: A financial adviser can provide insights tailored to your personal circumstances, helping you structure tax-effective retirement strategies.
Final Thoughts
Division 293 tax can significantly impact high-income earners, but with strategic planning, you can minimise its effects. Regularly reviewing your super contributions and adjusting your financial strategies can lead to better long-term wealth accumulation.
At ActOn Wealth, we understand the nuances of superannuation and division 293 tax. Our expert team is here to help you navigate these complexities. Whether you’re a small business owner looking to optimise your super or someone who has worked across various jobs and holds multiple super funds, we have tailored, strategic superannuation advice for you.
For instance, if youve had various jobs, you likely have several superannuation funds. While a diversified approach may sound appealing, it often complicates things. Our financial services at ActOn Wealth aim to streamline your superannuation management for better outcomes.
Remember, super is just a tax structure; it’s not an investment by itself. You can control where your hard-earned money goes. You can choose to invest in successful Australian businesses or even put your money in a term deposit or property.
If you want to secure a comfortable retirement, remember that relying solely on the Australian pension wont meet your needs. At ActOn Wealth, were committed to helping you grow your superannuation and make the most of your financial future. Contact us today for expert advice on managing division 293 tax and optimising your superannuation strategy.
