Will you be hit with Div 293 Tax?

Understanding Division 293 Tax and Strategies to Minimize It

Here’s what you need to know about Division 293 tax and how it might affect you.

What is Division 293 Tax? Division 293 tax is an extra 15% tax on concessional super contributions for those with an adjusted taxable income over $250,000. This includes your salary, super contributions, and other income like bonuses, capital gains from selling shares, shares received from your employer under Employee Share Schemes (ESS) or Employee Share Option Plans (ESOP), redundancy payments, and negative gearing losses.

How is Division 293 Tax Calculated? The Division 293 tax is applied to the lesser of your concessional super contributions or the amount by which your adjusted taxable income exceeds $250,000.

Let’s break this down with an example.

Sample Scenario:

• Salary: $220,000
• Concessional Super Contributions (11% of Salary): $24,200
• Total Concessional Super Contributions: $24,200
• Value of Shares Received from Employer: $50,000
• Capital Gain from Selling Other Shares: $50,000
• Redundancy Payment: $20,000
• Negative Gearing Losses: $10,000
• Adjusted Taxable Income: $374,200

In this scenario:

• The excess over the $250,000 threshold is $374,200 - $250,000 = $124,200.
• The concessional super contributions are $24,200.

The Division 293 tax is applied to the lesser of these two amounts:

• 15% of $24,200 (super contributions) = $3,630
• 15% of $124,200 (excess over threshold) = $18,630

Since $3,630 is less than $18,630, you would pay an additional $3,630 in Division 293 tax.

You can elect to pay this tax by releasing funds from super so that your personal cash flow is not impacted.

Minimizing Division 293 Tax: Consider reducing your taxable income through charitable donations or additional super contributions:

1. Charitable Donations: To be effective, these donations must be made to Deductible Gift Recipients (DGRs). Donating $10,000 to your preferred charity can lower your adjusted taxable income to $364,200, thus reducing the extra tax and supporting a cause you care about.
2. Additional Super Contributions: Non-concessional contributions (after-tax) can boost your super savings without increasing your adjusted taxable income. Concessional contributions can also help, but be mindful that they may still attract Division 293 tax if your income exceeds $250,000.

Benefits Comparison:

Without Donation or Extra Super Contribution:

• Personal Tax: $139,057
• Medicare Levy: $7,484
• Contributions Tax: $3,630 (15% of $24,200)
• Division 293 Tax: $3,630
• Total Tax: $146,541 + $3,630 = $150,171
• After-Tax Income: $374,200 - $150,171 = $224,029

With a $10,000 Donation to a (DGR)Charity:

• New Adjusted Taxable Income: $374,200 - $10,000 = $364,200
• Personal Tax: $134,557
• Medicare Levy: $7,284
• Contributions Tax: $3,630
• Division 293 Tax: $3,630
• Total Tax: $141,841 + $3,630 = $145,471
• After-Tax Income: $364,200 - $145,471 = $218,729

With Additional Non-Concessional Super Contribution:

• New Adjusted Taxable Income: $374,200 (no change, as non-concessional contributions do not reduce taxable income)
• Personal Tax: $139,057
• Medicare Levy: $7,484
• Contributions Tax: $3,630
• Division 293 Tax: $3,630
• Total Tax: $146,541 + $3,630 = $150,171
• After-Tax Income: $374,200 - $150,171 = $224,029
• Boost to Super Savings: Extra contributions directly increase super savings without affecting adjusted taxable income.

While not donating or contributing extra keeps more money in your pocket, donating to a charity or your super provides tax benefits and increases your retirement savings.

Feel free to reach out for personalised advice on your super contributions and Division 293 tax!

This advice is general in nature, meaning it doesn't take into account your own objectives, financial situation or needs. Please consider if the advice is appropriate for you before acting on it.

#Superannuation #RetirementPlanning #TaxStrategy #FinancialPlanning #Charity #Division293 #TaxTips #SuperSavings #WealthManagement #FinancialAdvice