Rising Tide Blog

Division 293 tax – what is it?

Posted by Matt Hale

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As financial advisers, there are several strategies we can implement to help people minimise their tax burden each financial year – can you believe we’re now in the 2024 fiscal year by the way?! – while also remaining compliant with the Australian Taxation Office’s (ATO) changing tax rules and regulations.

Tax minimisation is a crucial aspect of financial planning. At Rising Tide, we believe in embedding tax planning into all components of advice throughout the year, not just at tax time.

Despite this, there are instances where certain tax liabilities are unavoidable, and the ATO benefits accordingly. One such scenario, which affects an increasing number of our clients, is the Division 293 notice.

What is the Division 293 tax?

Essentially, the Division 293 notice is an additional tax which is levied if an individual’s total income exceeds $250,000.
Total income includes their salary, any bonuses, fringe benefits tax, bank interest, and investment income, combined with their ‘concessional contributions’ to superannuation (employer contributions and any salary sacrifice amounts).
This threshold was set at $300,000 but was reduced to $250,000 from July 1st, 2017.

How does it work?

Once an individual’s combined income and concessional contributions surpass $250,000, they may face additional tax from the ATO, typically at a rate of 15%.
Let’s consider a couple of examples:

Example 1

John is an employee and his earnings breakdown is:

Salary + bank interest + bonus + employer super contributions = $245,000.

John is not affected by the Division 293 tax.

Example 2

In the following year, John receives an additional bonus from his employer.

Salary + bank interest + bonus + employer super contributions = $260,000.

John now needs to pay an additional 15% tax on the $10,000 exceeding the threshold, meaning he owes the ATO $1,500.

Paying Division 293 tax

If you’re faced with a Division 293 notice, you can:

  1. Pay using funds from your tax return or bank account.
  2. Explore the possibility of paying the additional tax liability through your superannuation fund. This option requires proper facilitation, but it can be pursued. Take timely action if this is your preferred choice.

Minimising Division 293 tax

So, what can you do to potentially minimise the impact of the Division 293 tax?

Everyone’s circumstances are different but, in all cases, proactive tax planning before the end of the financial year is crucial.

Engage in ongoing discussions with a financial adviser and accountant throughout the year because, when it comes to tax planning, if you wait too long to act, the opportunity can pass you by.