Division 293: the superannuation tax trap

Superannuation contributions can be a great tax and savings strategy, but as always, there are pitfalls to watch out for.

One of the advantages is that when you choose to make concessional super contributions, you can reduce the tax liability on your income tax. This is because super is generally taxed at a lower rate than income.

However there is, of course, a hidden tax!

Division 293 is an additional tax on super contributions that reduces the tax concession for individuals, where your combined income AND concessional contributions are more than $250,000. 

Division 293 is an additional 15% tax charged on the excess over the $250,000 threshold OR the taxable super contributions, whichever is less. It calculates both the taxable income from your tax return and your total concessional super contributions.

To pay the additional tax, you have two options. You can either pay cash, or elect to release funds from your existing super balance by lodging a Division 293 form.

Be careful when tax planning with superannuation contributions that you consider the additional Division 293 tax. The strategy may not be so tax effective!

As always, if you have questions, don’t hesitate to get in touch.