How to Avoid Division 293 Tax: 2026 Guide

You’re often not thinking about Division 293 tax in October or February. You notice it later, when the ATO issues an assessment and a super strategy that looked sensible on paper suddenly feels more expensive than expected.

What You'll Learn

• What Is Division 293 Tax and Who It Affects
• Proactive Strategies to Reduce Your Liability
• Division 293 Tax in Action Worked Examples
• Navigating the ATO Process From Assessment to Payment
• When to Partner with a Tax Specialist

That’s why the better question usually isn’t just how to avoid division 293 tax. It’s how to manage the moving parts early enough that you still have options.

For high-income professionals, business owners, and property investors, Division 293 isn’t only about salary. A bonus, a capital gain, a payout on exit, or a year of stronger-than-usual business income can push you into the zone where concessional super contributions attract extra tax. The clients who handle it best usually don’t wait for the notice. They review income timing, contribution settings, and likely one-off events before year end.

What Is Division 293 Tax and Who It Affects

A common scenario looks like this. Salary sits below the line for most of the year, super contributions are ticking along, then a bonus, capital gain, business profit spike, or termination payment lands and the ATO later issues a Division 293 assessment. The tax was always possible. It just was not identified early enough.

Division 293 tax is an extra 15% tax on concessional super contributions for higher-income individuals. Broadly, it applies where your income for this purpose, plus relevant concessional contributions, exceeds $250,000. The extra tax is calculated on the lesser of the amount above that threshold and your concessional contributions, as explained in Morningstar’s overview of Division 293 tax.

That threshold is fixed. Over time, more professionals and business owners get pulled into the rule even in years that do not feel unusually high-income.

Why the income test catches people off guard

From a tax perspective, adjusted taxable income is deliberately broad. Looking only at base salary is where many clients get the position wrong.

Division 293 often affects people whose ordinary pay seems manageable but whose full-year tax profile tells a different story. In practice, the pressure points are usually:

• capital gains realised in the same year as strong employment or business income
• bonuses, commissions, and deferred remuneration
• uneven company or trust income
• multiple income streams across salary, investments, and business activities
• employer contributions continuing in a year with a one-off taxable event

That is why Division 293 planning works best as a year-round review, not a June-only exercise.

How the calculation works in real terms

The extra tax does not apply to all of your income. It applies only to the taxable base worked out under the rule above.

If your concessional contributions for the year are $20,000 and your Division 293 income exceeds the threshold by $18,000, the extra tax applies to $18,000, not the full contribution amount. At 15%, that produces $2,700 of Division 293 tax.

The point clients usually care about is practical. Once you go over the threshold, even by a small amount, the rule is in play. The final cost then depends on how far over you are and how much concessional super has been contributed.

Key elementHow it works

Threshold

Combined adjusted taxable income and low tax contributions above $250,000

Extra tax rate

15% additional tax on affected concessional contributions

Effective contribution tax

Concessional contributions can effectively be taxed at 30% instead of 15%

Tax base

The lesser of the excess over the threshold or total concessional contributions

Common trigger

A strong year of total income, not just a high salary figure

Who should pay close attention

This tax regularly affects more than executives on obvious top-end packages. I pay close attention to it for clients in these groups:

• medical, legal, financial, and corporate professionals with bonuses or partnership-style income
• business owners with variable annual profit
• investors realising gains in a single year
• employees changing jobs, selling a business interest, or retiring with lumpier income than usual
• anyone near the threshold who is also making salary sacrifice or personal deductible contributions

For business owners, good records matter because income timing and contribution timing both matter. Clean bookkeeping and accurate bank reconciliations make it much easier to identify when a large receipt, distribution, or contribution could shift the Division 293 result.

The ATO works out liability using your tax return information and contributions reported by super funds. In other words, the key planning question is not whether the ATO will pick it up. The key question is whether you reviewed the year early enough to choose a better outcome.

If you want the technical foundation before looking at planning options, this AWTS guide on what Division 293 tax is sets out the underlying rules in more detail.

Proactive Strategies to Reduce Your Liability

A typical Division 293 problem starts in March, not when the ATO issues the assessment. A specialist is on track for a strong year, salary sacrifice is running at the usual level, a bonus is likely, and there may be an investment sale or trust distribution before 30 June. Each item can be reasonable on its own. Combined, they can create a tax outcome that could have been managed with earlier review.

That is why we treat Division 293 as a year-round planning issue. The best results usually come from coordinating income timing, contribution levels, and one-off transactions before they all hit the same financial year.

Adjust salary sacrifice before it becomes a problem

Salary sacrifice is often the easiest lever to change mid-year, especially for employees. The mistake is setting it once in July and leaving it untouched while income moves around it.

For clients near the threshold, we review three things together. Current year salary and wages. Expected bonuses or commissions. Employer and personal concessional contributions are already committed for the year. That gives a practical view of whether the existing sacrifice arrangement still makes sense.

Sometimes the answer is to reduce extra concessional contributions for the rest of the year. Sometimes the better decision is to keep contributing because the super outcome still stacks up well, even after Division 293. The point is to make that choice deliberately, not by accident.

Good records make this easier. If you are monitoring contribution timing, director drawings, or irregular receipts during the year, strong records and accurate bank reconciliations help us test the position with confidence.

Use timing where the law gives you room

Division 293 planning often comes down to which year carries the income. Where timing is commercially flexible, a short delay can change the result without changing the underlying economics.

One example, noted earlier by SMSF Australia in its Division 293 planning guide, is delaying a capital gains event until after 30 June so the gain falls into the next financial year. The same principle can apply to bonuses, commissions, or other employment entitlements if the payment date is flexible and the arrangement is handled properly.

This is not a suggestion to distort transactions. Commercial reality still comes first. If a property sale needs to settle in June or a business deal requires payment now, tax planning takes a back seat to the transaction. But when there is a real choice between late June and early July, test both outcomes before locking in the date.

I give clients a simple rule here. If income can land in either of two financial years without creating a commercial or legal problem, compare both before the paperwork is finalised.

Review discretionary transactions as a package

Division 293 often becomes expensive because decisions are made in isolation.

A business owner might sell an asset, draw extra income, make the usual concessional contributions, and receive a trust distribution in the same year. None of those decisions is unusual. The issue is concentration. Once several discretionary events land together, the threshold can be crossed by a much wider margin than expected.

Review these items together before they happen:

• planned asset sales that may trigger capital gains
• bonus or commission discussions with your employer
• trust distributions or business profit extraction
• retirement, resignation, or a change of role
• changes to salary packaging or reportable fringe benefits
• super contribution patterns that no longer match the current income outlook

Therefore, a coordinated plan matters. The goal is not to avoid every high-income year. The goal is to stop avoidable triggers from stacking into the same year when there was a better timing option available.

Manage the contribution side with the same discipline

Income gets most of the attention, but concessional contributions still determine how much of the excess is exposed to Division 293. That makes the contribution strategy just as important as income timing.

In practice, I look at the contribution strategy in tiers. First, confirm compulsory employer contributions. Next, check any salary sacrifice already in place. Then decide whether additional personal deductible contributions still make sense given the likely year-end income result.

There is a real trade-off here. Pulling back concessional contributions may reduce Division 293 in the current year, but it can also mean losing a tax-effective opportunity inside super. For many high-income earners, paying some Division 293 tax is still acceptable because concessional contributions are taxed more favourably than personal income at the top marginal rates.

If you are reviewing that part of the plan, this AWTS guide to the concessional contributions cap sets out the cap rules and the planning limits that sit alongside Division 293.

What usually does not work

Poor results usually come from delay or narrow thinking.

These approaches tend to fail:

1. Waiting for the ATO assessment
   By that point, the main planning choices for the year are usually gone.
2. Looking only at taxable salary
   Division 293 uses a broader measure than base salary alone.
3. Running maximum salary sacrifice without revisiting the numbers
   This can create a larger liability in a year with bonuses, gains, or other irregular income.
4. Treating one-off events as harmless
   One capital gain or lump sum payment can be the factor that changes the whole position.
5. Abandoning super contributions just because Division 293 applies
   That can be the wrong conclusion. The better question is whether the after-tax outcome still justifies the contribution.

A short explainer can help if you want to hear the issue discussed in a more conversational format.

Build a year-round review habit

The strongest Division 293 planning is built around review points during the year, not a rushed check in late June.

Review pointWhat to check

Early in the financial year

Salary sacrifice settings, expected income, and known one-off events

Before major transactions

Whether the timing of a gain or distribution changes the Division 293 result

Before bonus or entitlement payments

Whether payment timing is flexible and commercially appropriate

Mid-year

Whether actual income is tracking above the original estimate

Before year end

Whether current contribution levels still fit the revised income position

After an ATO assessment

Whether to pay personally or release funds from super

This process does not guarantee that Division 293 disappears. It does put you in control of the decisions that usually matter most.

Division 293 Tax in Action Worked Examples

The mechanics are easier to grasp when you see them in real situations. These examples show how a small timing change can alter the outcome, even when the underlying income level stays strong.

Maria and the late bonus

Maria is a senior employee. Her regular income and concessional contributions put her close to the Division 293 threshold, but not clearly above it early in the year.

Late in the financial year, she receives an unexpected bonus. That pushes her combined position over the line.

The key point isn’t that Maria did something wrong. It’s that no one tested the effect of the bonus payment date against the threshold before it was processed.

Income ComponentAmountNotes

Adjusted taxable income before bonus

$248,000

Close to the threshold already

Low tax contributions

$20,000

Concessional contributions for the year

Bonus received in same financial year

$20,000

Pushes combined position above the threshold

Combined figure

$268,000

Exceeds threshold by $18,000

Division 293 taxable base

$18,000

Lesser of excess over threshold or concessional contributions

Division 293 tax liability

$2,700

Based on the verified example calculation

This mirrors the verified rule and example already set out earlier. Maria’s excess over the threshold is $18,000. Her concessional contributions are $20,000. The tax applies to the lesser amount, so $18,000 is taxed at the additional 15%, producing $2,700.

What could have changed the result? If Maria had scope to arrange for that bonus to be paid in the next financial year, the current year position may have stayed below the threshold. The commercial question would have been whether payroll timing was flexible and whether shifting the payment created any separate issue.

That’s often the practical difference between reactive and proactive planning. The tax result turns on a decision made before payroll finalises the amount.

Where income is already hovering near the threshold, a late-year bonus is rarely a minor detail.

David and the property sale

David is a property investor with strong employment income. He also makes concessional super contributions and usually accepts that some years will require closer tax planning.

He decides to sell an investment property near the end of the financial year. The sale creates a capital gain and pushes his combined position over the Division 293 threshold.

The problem for David isn’t the existence of the gain. The problem is that the transaction date was flexible, but he didn’t review the tax-year impact before contracts and settlement timing were locked in.

Here’s the qualitative comparison:

Capital gain shifts into the following year and may reduce the current year's liabilityLikely effect on Division 293

Capital gain shifts into the following year and may reduce the current year's liability

Capital gain falls into the current year and may trigger or increase liability

Property sale delayed until after 1 July

Capital gain shifts into the following year and may reduce current year liability

This is exactly why timing matters so much with capital gains. The verified guidance specifically identifies postponing a property sale until 1 July as a critical planning approach for shifting the gain into the next financial year.

For David, waiting a short period might have changed the current-year outcome without altering the long-term investment decision. In practice, you’d still need to review the broader picture. A delayed gain could move the problem into the next year if that year is already shaping up as a high-income one. But at least the decision would be made knowingly.

What these examples actually show

Maria’s issue came from employment income timing. David’s came from transaction timing.

The shared lesson is simpler than the legislation. Division 293 is often manageable when the event is still optional. Once the bonus is paid or the sale is completed, planning usually becomes administration.

That’s why the strongest question to ask isn’t “Will I get assessed?” It’s “Which decisions before year end still affect the answer?”

Navigating the ATO Process From Assessment to Payment

A common pattern is this. The planning was done too late, the year has closed, and the ATO notice arrives when cash is already committed elsewhere. At that point, the job changes from reducing the liability to handling it cleanly and without avoidable cost.

How the assessment arises

The ATO issues a Division 293 assessment after matching your tax return with concessional contribution data reported by your super fund. In practice, that means the assessment usually arrives after the year is over and after the contribution reporting cycle has caught up.

By then, the main planning decisions are gone. What remains is administration, accuracy checking, and choosing the least disruptive way to pay.

The key decision window

Once the ATO issues the assessment, your first decision is how to pay it. You generally have 60 days to either pay from personal funds or make an election to release the amount from super.

That choice affects two things immediately. Your personal cash flow and your retirement balance.

Clients often focus on the tax itself and treat the payment method as a minor detail. It is not a minor detail. If the year already included provisional tax, school fees, debt repayments, or business working capital pressure, using super to fund the liability may be the more practical option. If preserving long-term super growth is the priority and cash is available, paying personally can be the better result.

If you are unsure how the election works, it helps to understand what a registered tax agent does before responding to the notice.

Paying personally or releasing from super

There is no standard answer that suits everyone. The better option depends on the numbers and on what else is happening financially at the time.

Payment approachMain advantageMain trade-off

Pay from personal funds

Keeps more money invested in super

Reduces available after-tax cash

Release from super

Preserves personal liquidity

Lowers your super balance

For a business owner, preserving cash can matter more than preserving every dollar in super if that cash supports wages, BAS liabilities, or short-term operating needs.

For a salaried professional with stable income and strong savings, paying the assessment personally is often cleaner and keeps the super strategy intact.

Check the notice before acting

Before you make the election or arrange payment, check the assessment carefully. I look at four things first:

• Taxable income and adjusted income components used in the assessment
• Concessional contributions reported by each fund
• Any amended return, employer correction, or fund reporting update still in progress
• Whether the nominated super fund details are current and accurate

Most assessments are correct. Some are not.

A contribution can be reported in the wrong year. An amended return may not have flowed through yet. A fund detail may be outdated. If you act on a notice without checking those points, you can create extra work and tie up cash unnecessarily. The practical approach is simple. Confirm the figures first, then fund the liability in the way that best fits your broader plan for the year.

When to Partner with a Tax Specialist

Some Division 293 situations are straightforward. A salaried employee with stable income, no major transactions, and simple super arrangements can often understand the exposure with a focused review.

Others are not straightforward at all.

The red flags that usually justify advice

DIY planning becomes riskier when income is uneven or decisions in one area affect several tax outcomes at once.

You should usually get specialist advice if you have:

• Lumpy income from bonuses, commissions, or business profits
• A planned capital gains event that could be timed in more than one way
• Multiple employers or mixed income sources
• A business structure involving a company or trust
• A self-managed super fund
• A retirement, resignation, or sale event is approaching

In those cases, the issue isn’t only Division 293. The wider risk is creating a poor outcome somewhere else while trying to solve it.

What goes wrong in DIY planning

The common mistakes are rarely exotic. People use outdated figures, overlook one-off receipts, or focus on one tax rule while missing another.

That can lead to:

• contribution settings that no longer suit the year’s income
• cash flow strain when the assessment arrives
• avoidable timing mistakes on asset sales
• unnecessary confusion about whether to fund the liability personally or through super

The technical rules are manageable. Coordinating them across a real financial year is the harder part.

What specialist advice should actually do

Good advice here shouldn’t feel like a generic warning about tax complexity. It should produce a workable plan.

That usually means:

1. Estimating likely Division 293 exposure early
2. Stress-testing major transactions before they happen
3. Reviewing contribution settings during the year
4. Comparing payment options if an assessment arrives
5. Keeping the broader tax strategy coherent

If you’re deciding whether to engage help at all, this AWTS article on what a tax agent does gives a useful overview of the role.

The value of advice isn’t just calculating the tax. It’s reducing the number of expensive decisions you make too late.

If your income is near the Division 293 threshold, or a bonus, property sale, or business event could push you over it, a proactive review can make a real difference. Australia Wide Tax Solutions helps individuals, investors, and business owners assess likely exposure, review contribution settings, and plan payment timing before the ATO notice arrives. Book a consultation to review your income structure and build a practical plan for the year ahead.

What is Division 293 tax in Australia?

Division 293 tax is an additional 15% tax on concessional super contributions for high-income earners. It applies when income plus low-tax contributions exceed $250,000 in a financial year. The tax reduces the concession advantage that higher-income earners receive on super contributions, bringing the effective rate on those contributions to 30%.

Who pays Division 293 tax?

Anyone whose combined income and concessional super contributions exceed $250,000 in a financial year. Income includes salary, business income, investment income, and reportable fringe benefits. The additional 15% applies to the lesser of the concessional contributions or the amount by which the combined total exceeds $250,000.

How is Division 293 tax assessed and paid?

The ATO calculates the liability after you and your fund lodge their respective reports. You can pay from personal funds or elect to have the tax released from your super fund within 60 days of the assessment. Most people elect release from super to preserve personal cash flow.

How do I reduce my Division 293 tax liability?

Reducing concessional contributions below the threshold is the most direct approach. Alternatively, time large one-off contributions across financial years to avoid pushing income over $250,000 in a single year. Non-concessional contributions are not subject to Division 293. Salary packaging that reduces reportable amounts may also lower income for the test.

Is Division 293 tax deductible?

No. Division 293 tax is not deductible. It is an additional levy on concessional contributions and cannot be claimed in your return. The net effect is contributions taxed at 30% rather than your marginal rate — which still represents a saving for most taxpayers above the threshold facing a 47% marginal rate.