Division 293 Tax: 7 Traps High-Income Earners Must Watch

High-income earners contributing to superannuation often face division 293 tax without fully understanding its implications. While super is designed to help Australians grow wealth for retirement, the tax applies an extra 15% tax on concessional contributions for individuals earning over a $250,000 threshold.

Bradley Raw, CA SSA, Accredited SMSF Specialist, warns that “failing to plan for Division 293 tax can unnecessarily reduce retirement savings and lead to unexpected tax bills” (Raw, 2023).

This guide outlines seven traps high-income earners must watch to minimise liability and make informed superannuation decisions.

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What is Division 293 Tax?

Division 293 tax is an additional tax applied to concessional super contributions for individuals whose income exceeds $250,000 per financial year. Concessional contributions include:

• Employer contributions
• Salary sacrifice contributions
• Personal deductible contributions

The tax increases the standard contributions tax from 15% to 30% for affected individuals (ATO, Division 293 tax).

The purpose is to reduce tax concessions for high-income earners, creating a fairer super system while discouraging excessive contributions from those already earning significant income.

Trap 1: Misunderstanding Total Income

Many high-income earners incorrectly assume only their salary counts toward Division 293 tax. The ATO considers multiple income sources:

• Salary and wages
• Bonuses and commissions
• Reportable fringe benefits
• Net investment income
• Reportable super contributions

Example:
A director earns a $220,000 salary, receives a $30,000 bonus, and has $10,000 in salary sacrifice contributions. Total income is $260,000, triggering Division 293 tax. Miscalculating total income is a common trap (MoneySmart, Division 293 tax).

Tip: Always calculate your combined income to determine whether Division 293 applies before making further concessional contributions.

Trap 2: Over-Contributing Through Salary Sacrifice

Salary sacrifice contributions can inadvertently push high-income earners above the $250,000 threshold.

Common Mistakes:

• Increasing contributions without assessing total income
• Ignoring employer contributions
• Overlooking contributions to multiple super funds

Example:
An employee earning $230,000 contributes $20,000 via salary sacrifice. With bonuses and employer contributions, their total income exceeds the threshold, triggering an extra 15% tax on some contributions (Morningstar, avoid paying extra super tax).

Tip: Plan salary sacrifice amounts in consultation with an SMSF accountant to avoid unnecessary Division 293 tax.

Trap 3: Ignoring Multiple Super Accounts

High-income earners often have more than one super account. Failing to track contributions across all accounts can cause unintentional exposure to Division 293 tax.

Example:
A director contributes $15,000 in one fund while their employer contributes $20,000 to another. The combined contributions may trigger Division 293 tax if the total surpasses the threshold.

Tip: Consolidate super accounts where possible and maintain accurate records of contributions to monitor tax exposure (Morningstar, avoid paying extra super tax).

Trap 4: Poor Timing of Contributions

The timing of contributions can make the difference between paying Division 293 tax or staying below the threshold.

Common Timing Mistakes:

• Making large deductible contributions at the end of the financial year
• Receiving a year-end bonus that pushes total income over $250,000
• Ignoring the effect of employer contributions reported after year-end

Example:
An employee contributes $25,000 in June. A $30,000 bonus received in July but relating to the previous financial year pushes total income above the threshold, incurring Division 293 tax.

Tip: Strategically time contributions and bonus payments to minimise exposure.

Trap 5: Failing to Consider Investment Income

Investment income, including dividends and capital gains, is counted towards total income. High-income earners may overlook this when assessing Division 293 risk.

Example:
A director earns $240,000 in salary and receives $20,000 in investment income. Total income of $260,000 triggers the additional tax.

Tip: Include all sources of taxable income in planning to accurately calculate Division 293 liability.

Trap 6: Not Planning for Catch-Up Contributions

Unused concessional contribution caps can be carried forward for up to five years. However, contributing catch-up amounts without considering total income may inadvertently trigger Division 293 tax.

Example:
A high-income earner uses $15,000 of carry-forward contributions on top of regular salary sacrifice contributions. Their total exceeds $250,000, triggering Division 293.

Tip: Combine catch-up contributions planning with careful income monitoring to optimise super without triggering extra tax (ATO, Division 293 tax).

Trap 7: Ignoring Professional Advice

Division 293 rules are complex. Many high-income earners attempt DIY planning, leading to mistakes and extra tax.

Common Issues:

• Miscalculating total income
• Misjudging the impact of multiple funds
• Failing to optimise contribution strategies

Tip: Consult an accredited SMSF accountant or superannuation adviser. Professional advice can reduce Division 293 liability, forecast tax exposure, and provide tailored strategies for super contributions (WA SMSF Specialists, SMSF Compliance Advice).

Strategies to Avoid Division 293 Tax

1. Calculate Total Income Accurately: Include all taxable sources.
2. Monitor Concessional Contributions: Track salary sacrifice and employer contributions.
3. Consolidate Super Accounts: Reduce administrative risk and track contributions effectively.
4. Time Contributions Strategically: Spread contributions across financial years.
5. Use Catch-Up Contributions Wisely: Avoid pushing income over the threshold.
6. Seek Professional Advice: Accredited SMSF accountants provide tailored planning to reduce exposure.

Implementing these strategies allows high-income earners to maximise retirement savings while minimising additional tax liabilities.

Conclusion

Division 293 tax can be a costly trap for high-income earners if not properly managed. Understanding total income, timing contributions, consolidating super accounts, and seeking professional advice are critical to minimising liability. Bradley Raw, CA SSA, stresses that proactive planning and ongoing monitoring of contributions are key to avoiding unexpected tax and protecting long-term retirement savings.

FAQ: Division 293 Tax

1. What is Division 293 tax?

Division 293 tax is an additional 15% tax on concessional super contributions for individuals whose total income exceeds $250,000 per financial year. It applies on top of the standard 15% contributions tax.

2. Who needs to pay Division 293 tax?

High-income earners with total income above $250,000, including salary, bonuses, reportable super contributions, and investment income, are liable for Division 293 tax.

3. Which contributions are included?

Employer contributions, salary sacrifice contributions, and personal deductible contributions are all considered concessional contributions subject to Division 293 tax (ATO, Division 293 tax).

4. How can I reduce my Division 293 liability?

You can reduce liability by consolidating super accounts, monitoring all income sources, timing contributions strategically, and seeking professional advice from an accredited SMSF accountant (WA SMSF Specialists, SMSF Compliance Advice).

5. Does investment income affect Division 293?

Yes. Investment income, such as dividends and capital gains, is included in total income and can trigger Division 293 tax if combined with other taxable income.

6. Can multiple super funds trigger extra tax?

Yes. Contributions across multiple super funds are aggregated to determine total concessional contributions. Failing to track all contributions may result in unexpected Division 293 tax (Morningstar, avoid paying extra super tax).

7. What happens if I ignore professional advice?

Ignoring advice can result in overpaying tax, miscalculating contributions, and missing planning opportunities. High-income earners benefit from professional guidance to optimise super contributions.

8. Are catch-up contributions affected by Division 293?

Yes. Catch-up contributions can push total concessional contributions over the $250,000 threshold, triggering additional tax.

9. Is Division 293 applied automatically?

Yes. The ATO calculates and applies Division 293 tax based on reported contributions and income.

10. Who can help me manage Division 293 tax?

Accredited SMSF accountants and superannuation advisers can provide planning strategies, monitor income and contributions, and help reduce unnecessary tax.

Read our other blogs:
SMSF Administration Checklist
Use Your SMSF to Invest in Residential or Commercial Property
What is an SMSF? The Complete Guide
SMSF Accountant: 7 Powerful Reasons to Hire One