Division 293 tax catches many high income earners off guard, creating unexpected financial burdens that could have been avoided with proper planning. This additional tax on superannuation contributions affects Australians when their combined income and concessional contributions exceed the income threshold of $250,000. We understand how frustrating it can be to discover you owe money you weren’t expecting, especially when managing your financial situation should feel straightforward rather than stressful.
Many people find themselves liable for this tax without realising how their total income gets calculated or what triggers the assessment. The good news is that most division 293 mistakes are preventable once you understand the rules and know what to watch for. This article will help you recognise the common pitfalls that trip people up and show you practical ways to manage your tax liability effectively, so you can keep more money in your super account and avoid unnecessary stress.
Understanding How Division 293 Tax Works and Why People Get Caught Out
Division 293 is an additional tax that the Australian taxation office applies when your adjusted taxable income plus your concessional super contributions go over $250,000 in a financial year. This means you pay an extra 15% tax on top of the standard 15% contributions tax, effectively doubling the tax rate on your super contributions to 30%. The confusion often happens because this isn’t just about your salary – the calculation includes various income sources that many people forget to consider.
Your adjusted taxable income covers more than just what you earn from work. It includes your taxable income, reportable fringe benefits, net investment losses, and even adds back deductions like rental property losses. This broad definition means that even if your salary sits comfortably under the division 293 threshold, other income sources or significant employer contributions could still push you over the limit.
Who Gets Hit by Division 293 Tax
You don’t need to be earning massive amounts to face this tax liability. People receiving bonuses, making a capital gain from selling property or shares, or those getting an eligible termination payment often find themselves unexpectedly over the threshold. Even retirees who withdraw money from a defined benefit fund and put it back into their super account can trigger this assessment. The tax applies to any concessional contributions that push your total over the limit, whether they come from salary sacrifice contributions, employer contributions, or personal deductible contributions.
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When the Assessment Arrives
The Australian taxation office sends your division 293 assessment after they receive both your tax return and contribution information from your super fund. This usually happens months after the end of the financial year, which means many people have forgotten about income events that occurred earlier. You’ll receive a notice through your myGov account or your registered tax agent, and you typically have options for how to pay – either from your own money or by releasing money from your superannuation.
The Most Common Division 293 Mistakes People Make
Understanding where others go wrong can help you avoid the same costly errors. These mistakes range from simple oversights about what counts as income to more serious procedural errors when paying the tax.
Most people who get caught out by division 293 make predictable mistakes that we see repeatedly. Learning about these common errors can save you thousands of dollars and help you stay on the right side of your tax obligations.
Mistake 1: Miscalculating Your Total Income
One of the biggest errors is underestimating what the Australian taxation office includes in your income calculation. Many people focus only on their salary and forget about other sources that count towards the division 293 threshold. The assessment includes reportable fringe benefits, which means if your employer provides you with a car, health insurance, or other benefits, these get added to your total income even if you don’t receive the money directly.
Net investment losses also get added back to your income for division 293 purposes. This catches people who use negative gearing strategies, thinking these losses will help them stay under the threshold. Unfortunately, the division calculation adds these losses back, so they don’t provide any protection against the additional tax.
Mistake 2: Ignoring One-Off Income Events
Many people get blindsided by division 293 because they don’t consider how one-off events can push them over the income threshold. Receiving a large bonus in one financial year, selling an investment property, or making other capital gains can create a tax liability even if your regular income normally keeps you safely under the limit. Some people also trigger the tax when they withdraw money from government superannuation schemes or other defined benefit funds and recontribute it, not realising this creates a taxable event.
Mistake 3: Incorrect Payment Procedures
Serious errors often occur when people try to pay their division 293 liability from their super fund incorrectly. Some self-managed super fund trustees pay the tax directly from the fund without following the proper process. This creates an unauthorised loan that must be repaid and can lead to compliance issues with the Australian taxation office. The correct procedure requires you to receive your assessment, elect to pay from superannuation within 60 days, wait for the release authority, and only then can your fund make the payment.
Mistake 4: Missing or Ignoring Assessment Notices
Division 293 assessments arrive through myGov or your tax agent, and missing these notices leads to late payment penalties and interest charges. Some people assume they don’t owe the tax because they haven’t received a notice, not understanding that assessments can arrive many months after the financial year ends. Others receive the notice but ignore it, hoping it will go away or thinking they can dispute it later, which only makes the situation worse.
How to Avoid Division 293 Tax Mistakes
Avoiding division 293 problems requires good planning, accurate record keeping, and understanding your payment options. While you can’t completely avoid the tax if your income exceeds the threshold, you can manage your obligations more effectively and avoid the penalties that come with mistakes.
Smart planning throughout the year helps you anticipate potential division 293 liability and make informed decisions about your superannuation and income. Here’s how to stay ahead of potential problems.
Keep Track of All Your Income Sources
Maintain detailed records of everything that counts towards your adjusted taxable income throughout the financial year. This includes your salary, any bonuses, investment income, rental income, and capital gains from selling assets. Don’t forget about reportable fringe benefits from your employer – these often catch people by surprise because they feel like free benefits rather than taxable income.
Track your concessional super contributions from all sources, including employer contributions, salary sacrifice amounts, and any personal deductible contributions you make. Remember that the concessional contributions cap applies to the total from all sources, and exceeding this limit creates additional complications on top of any division 293 liability.
To avoid costly mistakes and stay compliant with superannuation laws, read our article on the Super Guarantee Rate.
Plan Around Major Income Events
If you’re expecting a large bonus, planning to sell an investment property, or considering any major superannuation strategy, factor in the potential division 293 impact before you act. Sometimes it makes sense to spread income across different financial years or time these events to minimise your overall tax liability. For superannuation rollovers from government schemes or other defined benefit funds, consider doing a direct rollover rather than taking the money personally and recontributing it.
Work with us to model different scenarios and understand how various strategies might affect your total tax position. We can help you decide whether it’s worth making additional concessional contributions if you’re already over the threshold, or whether other strategies might work better for your financial situation.
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Understand Your Payment Options When Assessed
When you receive a division 293 assessment, you have two main payment options. You can pay the liability from your own money, which preserves your superannuation balance for retirement, or you can elect to have the amount paid from your super fund. If you choose the superannuation option, make sure you follow the correct procedure by lodging your election within 60 days and waiting for the Australian taxation office to issue a release authority before your fund makes any payment.
Consider the long-term impact of each payment method on your retirement savings. Paying from superannuation reduces your account balance and the potential for compound growth over time, while paying from other funds preserves your retirement savings but requires immediate access to cash.
Stay Connected and Responsive
Keep your contact details current with both the Australian taxation office and your superannuation fund so you don’t miss important communications. Set up myGov notifications to alert you when new correspondence arrives. If you use a tax agent, make sure they’re authorised to receive your division 293 notices and understand the time-sensitive nature of these assessments.
Review any assessment carefully and respond promptly, even if you think there’s an error. Ignoring the notice won’t make it disappear and will only result in additional penalties and interest charges that make the situation worse.
Conclusion
Division 293 tax doesn’t have to create financial stress and unexpected bills if you understand the rules and plan accordingly. The most common mistakes – miscalculating income, ignoring one-off events, incorrect payment procedures, and missing notices – are all preventable with proper knowledge and planning. By keeping track of all your income sources, planning around major financial events, understanding your payment options, and staying responsive to communications, you can manage your division 293 obligations effectively.
We recommend reviewing your income and superannuation contributions regularly throughout the year to estimate your potential liability. If you’re approaching the threshold or expecting any significant income events, let’s discuss strategies to manage your tax position effectively while supporting your long-term financial goals.
Have you considered how your current income and superannuation strategy might be affected by division 293 tax, and are you confident you’re taking the right steps to minimise any unexpected liabilities?
