Navigating Division 293 Tax

While this document discusses Division 293 Tax issues from a SMSF trustee perspective, this also applies to members of ordinary Super funds as well. Particularly the 4th paragraph where we identify individuals whose income is lower than $250,000 but, as a result of other factors, rises to an amount at or beyond $250,000.00.

Division 293 tax, initially designed to target high-income earners, has broader implications that extend beyond those with traditionally higher incomes. This tax, which aims to reduce the tax concessions for individuals with income exceeding a certain threshold, can affect a wider range of taxpayers, including self-managed super fund (SMSF) trustees.

Introduced in 2012, Division 293 tax impacts individuals with income and concessional superannuation contributions exceeding $250,000 annually. It levies an additional 15% tax on the taxable contributions exceeding this threshold, effectively reducing the tax benefits associated with superannuation.

You may earn less than the threshold but other factors could see you exceed this amount.

While Division 293 tax primarily targets high-income earners, its impact can extend to individuals with fluctuating incomes or those with one-off windfalls. For SMSF trustees, understanding the implications of this tax is crucial, as it can affect contribution planning and retirement strategies.

SMSF trustees need to consider various factors when managing Division 293 tax implications within their fund. This includes understanding the calculation method for concessional contributions, which encompasses employer contributions, personal deductible contributions, and salary sacrifice arrangements.

Moreover, SMSF trustees should be aware of the potential impact of Division 293 tax on their fund's cash flow and investment strategy. By considering the tax implications, trustees can make informed decisions regarding contribution levels, investment allocations, and retirement planning.

Divsion 293 doesnt only affect concessional contributions.

While Division 293 tax primarily targets concessional contributions, it can also affect non-concessional contributions in certain scenarios. Trustees need to be mindful of the total superannuation balance (TSB) thresholds, as exceeding these limits can trigger additional tax liabilities under Division 293.

Furthermore, SMSF trustees should regularly review their fund's financial position and contribution strategies to manage Division 293 tax effectively. This includes considering strategies such as contribution splitting, timing contributions to optimize tax benefits, and utilizing carry-forward concessional contribution caps where applicable.

In addition to contribution planning, SMSF trustees should explore alternative retirement income strategies to mitigate the impact of Division 293 tax. This may include exploring options such as transition to retirement strategies, asset allocation adjustments, and maximizing the use of tax-effective investment structures within the fund.

Whenin doubt, seek advice from specialist qualified and experienced in this area.

SMSF trustees should also seek professional advice from qualified financial advisers or tax specialists to navigate the complexities of Division 293 tax effectively. By proactively managing Division 293 tax implications, trustees can optimize their fund's tax position and enhance long-term retirement outcomes for members.

In summary, Division 293 tax presents challenges and opportunities for SMSF trustees, beyond its initial scope of targeting high-income earners. By understanding the implications of this tax, trustees can develop tailored strategies to optimize their fund's tax position and achieve their retirement goals effectively.

Why not take the next step and talk to a qualified financial planner? 

LifeTime Financial Group are specialist (holding appropriate accreditations) advisors who are ideally positioned to assist you with your Self Managed Super arrangements. 

If you would like to discuss your financial planning needs, why not call us today on 03 9596-7733? There is no cost or obligation for our initial conversation/meeting.

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LifeTime Financial Group. A leading privately-owned Melbourne-based Financial Planning practice with no ties to any financial institution.

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