Getting mugged by a surprise tax – and how to reduce the impact

It may surprise some people but there are some lesser-known taxes in Australia that can come out of the bushes and mug you when you least expect it.

One great example is known as Division 293 tax and it often blindsides many people who don’t think of themselves as particularly wealthy.

The cut off point for Division 293 tax is an annual income of $250,000 but that includes the concessional superannuation contributions made during the year as well so it actually cuts in at a lower income level.

Hitting the income threshold is not as hard as many think

That certainly seems like a high income but it is not as hard to hit as you might think given occurrences such as the sale of a long-held asset, rising wages and superannuation guarantee payments or changing jobs so that a large amount of holiday, long service or other pay is added to your income in a particular year.

Given that the Division 293 tax applies on concessional super contributions and is an additional 15% levy on concessional super contributions above the $250,000 annual threshold, many surprised payers of the tax assume that there is no alternative but to leave your superannuation tax to double to 30% to pay the unexpected bill.

However, there are other options for paying this surprise tax that may work better for some individuals.

Alternatives to paying the bill from your super account

In general, financial planners try to maximise superannuation balances given the difficulties involved in getting money into super and the superior tax treatment and returns super brings over time.

So, they often recommend taxpayers look at alternatives to leaving your superannuation balance to bear the brunt of this tax bill, unless the super balance is approaching the soft cap of $3 million.

A taxpayer can simply elect to pay the additional 15% levy under Division 293 by paying from their cash flows outside super.

Many assume this is not possible because the tax is assessed on your super but for people who are able to pay the tax from savings or assets outside of superannuation, this can be a good option.

The question of whether to pay the bill out of your super or outside of super obviously depends on individual circumstances such as cash flow and an ability to pay and what your goals are with your superannuation balance.

Assessment surprise comes after your tax return

Another confusing and surprising aspect of this tax is that it is only levied as a separate tax assessment after you have lodged your tax for that year.

After your tax return is lodged, the Australian Taxation Office then contacts your nominated superannuation fund and issues a notice of assessment based on your income and total concessional super contributions.

For the 2024 financial year, anybody on a salary of $200,000 plus $22,000 of concessional super contributions at the super guarantee rate of 11% would pay an extra tax of 15% on this, or $3300.

Under current Division 293 tax rules, an extra 15% is payable on the $22,000 in super contributions, although this extra tax can be paid outside of your superannuation fund.

Paying Division 293 tax is probably not something to get too uptight about – those doing so are obviously doing well in that particular year but it is a tax that tends to unexpectedly mug many paying it for the first time.