Rising Tide Blog

Division 293 tax – what is it?

Posted by Braden Johnston

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As an accountant, there is lots of things we can do to help people minimize their tax.
But sometimes there is just nothing we can do, and the ATO reaps the benefit.

Each year, more & more of our clients are affected by a Division 293 notice, and no one ever seems to understand what it is (or how it works).

Basically, you pay additional tax if your total income (salary / bonus / Fringe benefit tax / bank interest / investment income) plus your ‘concessional contributions’ to super (what your employer pays & any sacrifice you make combined) totals above $250,000.

This limit used to be $300,000, but since July 1st 2017 it came down to $250,000.

Once you go above $250,000, you may face some additional tax from the ATO (normally 15%)

Here’s a couple of examples;
John works as an employee. Here’s a breakdown of his earnings.
Salary + bank interest + bonus + employer super contributions = $245,000
John is not affected at all by the Division 293 tax.

The following year, he got an additional bonus from the business.
Salary + bank interest + bonus + employer super contributions = $260,000

John now needs to pay an additional 15% tax on the $10,000 he is over the threshold.
That’s $1,500 to the ATO for John.

What can you do to avoid it?
As an employee, potentially nothing.
As a business owner, you need to look at your tax planning in advance & see if there is any way to make some changes before the financial year ends.

What are your options to pay for the additional tax?
if you do nothing, the money will come from your tax return / bank account.

Most choose to pay for it through their super fund. The latter requires a bit more work to facilitate but it can be done, so if that’s your preferred option you’ll need to act.

My advice, sit down with someone throughout the year to look at your tax planning – as the only guarantee with tax planning is that you can’t do anything after the horse has bolted.