The Hidden Tax High Income Earners Need to Know About

Are you earning over $250,000? If so, you could be paying more tax on your super contributions without even realizing it. But don’t worry—it’s not all bad news. In this blog, we’ll break down how Division 293 tax works, who’s affected, and what steps you can take to manage it.

What is Division 293 tax?

Division 293 tax is an extra 15% tax applied to concessional super contributions if your earnings are above $250,000 for the 2024/25 financial year.

How does it work?

If your income combined with concessional contributions (CCs) goes over $250,000 in 2024/25, you might need to pay an extra 15% tax on part or all of your CCs. This threshold includes income from various sources, like your salary, business earnings, investments, and even one-off payments like redundancy or termination payouts.

This tax is on top of the usual 15% tax that most people pay on their concessional contributions. Even so, concessional contributions can still be worthwhile for high earners. While you might pay a 30% tax rate (standard 15% plus Division 293 tax) on your super contributions, it’s still lower than the top marginal tax rate of 47% (including the Medicare levy).

How do I know if I need to pay it?

The ATO calculates whether you need to pay Division 293 tax using the information in your tax return and details from your super fund. If you owe the tax, they’ll send you a notice of assessment outlining the amount, along with an authority you can use to release the funds from your super. Alternatively, you can pay it from your personal savings if you prefer.

For members of defined benefit funds, the rules for calculating Division 293 tax are different, so it’s a good idea to check the ATO website for more details.

Who might need to pay Division 293 tax?

If your combined income and concessional contributions exceed $250,000 in 2024/25, you could be subject to this tax.

Example scenarios

• Bob’s situation: Bob earns a salary of $200,000, and his employer contributes $23,000 to his super. Since his total Division 293 income is $223,000 (below the $250,000 threshold), he doesn’t have to pay Division 293 tax. All of his concessional contributions are taxed at the standard 15%.

• Mary’s situation: Mary earns $250,000, and her employer contributes $28,750 to her super. Her total income for Division 293 purposes exceeds $250,000. This means her $28,750 concessional contributions will incur both the standard 15% contributions tax and an additional 15% Division 293 tax. Mary can either pay this extra tax from her own savings or release the funds from her super to cover the liability.

Chris Tolevsky has over 30 years experience in the medical and allied health fields.  He provides expert guidance on tax strategies, building and protecting wealth . If you’re interested in discussing how we can help you please book a complimentary consultation. 

Disclaimer: This article contains general information only . It is not designed to be a substitute for professional advice and does not take into account your individual circumstances, so please check with us before implementing this strategy to make sure it is suitable