Understanding Division 293 Tax: A Guide for Australian Business Owners

When running a business in Australia, there are numerous tax considerations to factor in when planning your financial position. One tax that might have flown under your radar is the Division 293 tax. But what is Division 293 tax, and why might you need to be aware of it? Let’s break it down for the savvy business owner.

What Is Division 293 Tax? 

Division 293 tax is an additional levy introduced by the ATO, specifically targeting high-income earners. This tax has been designed to minimise the larger tax benefits high-income earners might experience from contributions made to their superannuation fund. Typically, superannuation contributions are taxed at a concessional rate of 15%. The Division 293 tax effectively doubles this for certain high-income earners, imposing an extra 15% tax on contributions.

If the combined total of your adjusted taxable income and your Division 293 super contributions for a financial year is $250,000 or more, you could be liable for this additional tax.

Am I Considered a High-Income Earner? 

You might be thinking, “I run a modest business. I’m not a high-income earner!” However, the ATO has specific metrics for this. You’re classified as a high-income earner if your Division 293 income exceeds $250,000 in a financial year. This income is determined through the ‘Adjusted Taxable Income’ calculation, which considers various components, including your taxable income and personal concessional contributions.

Why Does Division 293 Tax Exist? 

It’s all about equity. The ATO introduced the Division 293 tax to bridge the gap between the tax concessions available to high-income earners versus average-income earners regarding superannuation contributions. By introducing this tax, the ATO aims to level the playing field, ensuring that all Australians, regardless of their income, benefit from tax concessions fairly and equitably.

Examples of Division 293 Tax Calculations

  1. Individual Scenario: Adjusted Taxable Income is $300,000 with concessional super contributions of $27,500 in the 2023 FY.
    • Division 293 Tax = $27,500 * 15% = $4,125
  2. Business Owner Scenario: Adjusted Taxable Income is $240,000 with concessional super contributions of $27,500 in the 2023 FY.
    • Division 293 Tax = $17,500 * 15% = $2,625 (since only $17,500 exceeds the $250,000 threshold).

Frequently Asked Questions 

How will I know if I owe Division 293 Tax? 

Once your individual tax return has been lodged and the ATO has collected information from your superannuation funds, the ATO will assess if you owe any Division 293 Tax. They’ll send you a notice detailing their calculations and when the payment is due.

What are my payment options? 

You can choose to pay directly from your personal bank account. Alternatively, you can fill out a nomination form to have the amount deducted from your superannuation account.

Can I avoid this tax? 

While it’s essential to abide by all tax obligations, an experienced accountant can guide you in financial planning, potentially reducing your Division 293 tax liability.

Next Steps 

If you’re a small to medium-sized business owner and have questions about Division 293 Tax and its implications for you and your business, it’s crucial to seek expert advice. We invite you to book an appointment online or call us at 0755361960. Our team of specialists at Impala Accountants is well-equipped to guide you through the intricacies of Australian tax laws, ensuring that you’re compliant and taking advantage of the best financial strategies for your business. Don’t navigate these waters alone; let us help guide the way.

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