What is Division 293 Tax? A Simple Guide for High-Income Earners

Division 293 tax tends to catch people by surprise. Most Australians don't even know it exists until an unexpected bill from the Australian Taxation Office (ATO) arrives, demanding payment within 21 days.

Simply put, Division 293 is an extra tax on superannuation contributions for high-income earners. This guide will walk you through what it is, how it works, whether it's still worth contributing to super knowing this tax applies, and practical ways you can manage or reduce it.

What is Division 293 Tax and Why Does It Exist?

Division 293 is an additional 15% tax on some or all of your concessional super contributions if your total income for the financial year exceeds $250,000. You can read the full details on the ATO website.

The purpose of this tax is to make the superannuation system fairer.

• An average-income earner on a 32% tax rate (including Medicare levy) gets a 17% tax concession when they contribute to super (32% minus the 15% tax inside super).
• A high-income earner on the top marginal tax rate of 47% would get a much larger 32% tax concession.

Division 293 tax steps in to level the playing field. It adds an extra 15% tax for high-income earners, effectively reducing their tax concession from 32% down to 17%—bringing it in line with what average earners receive.

How Division 293 Tax is Calculated: The Formula Explained

To work out if this tax applies, the ATO assesses your "income for Division 293 purposes." This has two parts:

• Division 293 Income: This starts with your taxable income and then adds back certain items, like net financial investment losses and net rental property losses.
• Division 293 Super Contributions: This is essentially your concessional contributions for the year, which include employer Super Guarantee payments, salary sacrifice, and personal deductible contributions.

If your Division 293 Income plus your Division 293 Super Contributions add up to more than $250,000, the tax will apply.

The 15% tax is charged on the lesser of two amounts:

1. The total amount of your super contributions.
2. The amount your total income went over the $250,000 threshold.

A Simple Analogy: The Lego Block Method

A more intuitive way to understand this is to think of it like stacking Lego blocks.

• Your Division 293 Income is the block at the bottom.
• Your Super Contributions are stacked on top.

If the total stack stays under the $250,000 line, you have nothing to worry about. If the line cuts through the super contributions block, only the portion of your super contributions above the line is hit with the extra 15% tax. If your income block alone is already over the line, then your entire super contribution block is taxed.

Case Study: A Step-by-Step Calculation

Let’s look at an example. In FY25, John:

• Earns a salary of $240,000.
• Receives employer super contributions of $27,600.
• Claims work-related deductions of $5,000.
• Makes a personal deductible super contribution of $20,000.
• Has a net rental loss of $10,000 from an investment property.

1. Calculate Division 293 Income
   We start with his taxable income: $240k (salary) - $5k (deductions) - $20k (super) - $10k (rental loss) = $205,000.
   For Division 293 purposes, the rental loss is added back: $205,000 + $10,000 = $215,000.
2. Calculate Division 293 Super Contributions
   This is his employer contributions plus his personal contribution: $27,600 + $20,000 = $47,600.
3. Determine the Final Tax Payable
   His total income for Div 293 purposes is $215,000 + $47,600 = $262,600.
   This is $12,600 over the $250,000 threshold.
   The tax applies to the lesser of the amount over the threshold ($12,600) and his total super contributions ($47,600).
   The tax is 15% of $12,600, which equals $1,890.

Is It Still Worth Contributing to Super if You Pay Division 293 Tax?

Yes, absolutely. This is a common point of confusion.

• Making extra contributions doesn't automatically increase your tax. If your income is below $250,000, salary sacrificing or making a personal deductible contribution won't increase your Division 293 tax bill. It simply shifts an amount from the "income" block to the "super" block without changing the total height of the stack.
• A 17% tax saving is better than nothing. Even with the extra 15% tax (bringing the total tax on contributions to 30%), it is still significantly better than paying the top marginal tax rate of 47% on that income outside of super.
• Earnings are taxed at a lower rate. Once the money is inside super, all future investment earnings are taxed at a maximum of 15%, compared to 47% if invested personally.

Strategies to Manage or Reduce Your Division 293 Tax

While strategies like negative gearing or salary sacrificing are ineffective for avoiding this tax (as they are added back into the calculation), there are some things to consider.

• What Works: Claiming eligible tax deductions (for things like donations or self-education) will reduce your taxable income and therefore your Division 293 income.
• Sharing the Load: If your spouse is also a high-income earner but has not yet reached the $250,000 threshold, it might be more tax-effective for them to make extra super contributions. As a household, you get more value from every dollar contributed.
• Timing Your Contributions: If you expect your income to fall below the $250,000 threshold in the near future (for example, due to parental leave or going part-time), it may be worth delaying large super contributions until you are no longer subject to the tax.