Understanding Division 293 Tax: What it is and When it Applies to You

What is Division 293 tax?

Division 293 tax is an additional tax that applies to higher-income individuals. It is designed to reduce the tax advantage they receive on concessional (before-tax) super contributions.

In simple terms, if your combined income plus concessional contributions for Division 293 purposes exceeds $250,000 in a financial year, you may be assessed this extra tax.

How is Division 293 tax calculated?

Division 293 tax is calculated by adding your Division 293 income to your concessional super contributions for the year. If the combined amount exceeds $250,000, an additional 15% tax applies to the lesser of the excess over $250,000 or your taxable concessional contributions. The ATO will issue the assessment once your tax return and your fund’s reports have been lodged.

Payment of Division 293 tax

Division 293 tax is handled through the ATO once they’ve processed your tax return and received your super contribution details from the fund.

If you’re liable, the ATO issues a Division 293 notice showing the amount payable and the due date. You can settle it either from personal cash flow, like any other tax debt, or by electing to have the amount released from your superannuation balance.

If you choose the super release option, you need to make that election within the ATO’s timeframe (generally 60 days from the notice), after which the ATO sends a release authority to your fund and the fund pays the ATO directly. Any remaining due date on the notice still applies, so it’s important to act promptly to avoid interest.

Deferred Division 293 tax

Deferred Division 293 tax is a special rule that applies where your Division 293 liability relates to a defined benefit superannuation interest (most commonly in older public sector or corporate defined benefit schemes).

Because defined benefit contributions aren’t held in a normal accumulation account you can draw from, the ATO doesn’t require immediate payment. Instead, they record the unpaid amount in a deferred debt account for that defined benefit interest and add interest to it each year at the average 10-year Treasury bond rate.

The deferred debt is only triggered for payment when an “end benefit” is paid from that defined benefit fund, such as when you retire and start the pension, take a lump sum, roll over on exit, or on death.

You can choose to pay all or part of the deferred amount earlier using personal funds or, if available, by releasing money from an accumulation super account, but the defined benefit component itself usually can’t be accessed until the end benefit event.

Plan ahead and avoid surprises

Division 293 tax is a key consideration for higher-income Australians because it can increase the tax on concessional super contributions once your income and contributions push past the $250,000 threshold.

The good news is that super can still be a smart long-term strategy even if Division 293 applies – it just means you need to understand how the threshold is tested, what counts in the calculation, and how timing of contributions, bonuses, or investment outcomes might affect your position.

If you think you may be close to the threshold, or you’re unsure how this interacts with your broader tax and retirement planning (including defined benefit situations where the tax may be deferred), the team at AWT can help you run the numbers early and set a clear contribution strategy. Reach out to us for tailored advice so you can keep building super with confidence and avoid unexpected ATO assessments.