DIV 293 Tax

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I'm considering the impact of DIV 293 on my possible IP sale, so lets see what its all about.

DIV 293 tax is a fun one as it works on the lessor of two amounts. Thus some funky things occur.

Now lets put aside the very good point that focusing on reducing tax is a terrible strategy, and focus on reducing tax.

Formula

If DIV 293 Income > $250K then DIV 293 applies.

If Super < Income + Super - $250K then Super Assessed Else Income + Super Assessed

Note: Income on this page means all DIV 293 Income excluding Super.

Hold My Triple Venti Half-Caf Soy Latte

Wait a second, I see something...

= Super > DIV293 Income + Super - $250K

= Super - Super > DIV293 Income + Super - $250K - Super (Subtract Super both sides)

= 0 > Income - $250K (Eliminate)

= Income - $250K < 0 (Reverse)

= Income - $250K + $250K < 0 + $250K (Add $250K both sides)

= Income < $250K

Oh, I did not expect to simplify what it turns out is an overly complicated test. Ok so now we have a much simpler test.

Formula (Better)

Lets try this again...

If Income < $250K Then Income + Super Assessed Else Super Assessed

Income <= $250K: Income + Super

If your income is under $250,000 then your income and super are ways to reduce it. But even then, it's unlikely.

= (Income + Super - $250,000) x 15%

This is the phase in stage of DIV 293. Think of it as a portion of your super is taxed as your income increases to $250k.

e.g. Income is $233,183 and Super is $26,817

= ($233,183 + $26,817 - $250,000) x 15% = $1,500

Income > $250K: Super

If your income is over $250,000 then sadly any extra concessional super contributions will be impacted by this 15% tax until your income excluding super drops below $250k, at which point this stops.

= Super x 15%

e.g. Income is $270,000 and Super is $30,000

= $30,000 x 15% = $4,500

Spousal Super Splitting got me excited but that was was quickly nuked after googling it. This will not help.

Both Assessed

Keep in mind if you do make changes to Income this can switch the formula used.

How Much

The amount will generally range from $0 to $4,500 (= $30,000 x 15% = $4,500).

If you make additional concessionally contributions AND your income is over $250K this amount will be higher.

Prospective

The maximum tax is close to an extra 1-2% tax on the total income. So while the hit as a MTR seems higher, overall its not massive compared to the tax/income involved.

Is putting extra into super still worth it?

If your income is under $250,000 then no impact.

If your income is over $250,000, then... 30% is still better than 47%. While 17% does not sound like much, the ROI is = 17% / (100% - 47%) = 32.1%.

So you still get a better benefit than a 32% MTR person gets (which is 25%).

Marginal Tax Rate

See also: The Exciting Parts of Marginal Tax Rates (MTR) if you pay child care.

The impact on the marginal tax rate for a person earning only a salary generally hits from $224,000 until $250,000 by adding 16.7% to it. $250,001 to $261,000 adds on at 1.72%.

Now I've taken this from here 62% effective marginal tax rate - AusHENRY.

So, why is it 16.7% and not 15%? The reason is the assumption made in the above is that as you increase/decrease your income you also increase/decrease your mandatory super contributions.

= (100% Wage + 11.5% Mandatory Super Contributions) x 15% = 16.725%.


And once Income > $250K we get

= 11.5% x 15% = 1.725%

Large Capital Gain

If the reason for hitting DIV 293 is a large CG from a property/share sale then its likely the impact will not be as significant as you may expect. The reason for this is because your super will be less.

e.g. Income = $400K and Super = $0

$0 Super x 15% = $0

But it also means if you hope to throw more money into Super to reduce the tax hit then its possible the entire extra contribution will be hit.

e.g. Income = $300K and Super = $100k

= $100 Super x 15% = $15k

Tax Reduction Methods

So, what things will impact DIV 293? Here is my attempt.

MethodIncome < $250K: Income + SuperIncome > $250K: Super
Charity✅🞬
4 Day Week / Part Time✅🞬1
Leave without Pay✅🞬1
Buy Annual Leave✅🞬2
Novated Lease EV❌4❌3
Novated Lease ICE✅🞬3
IT Worker Phone/Laptop✅🞬
Work Related Tax Deductions✅🞬
Negative Gearing❌❌
Negative Gearing Special5✅🞬
Reducing Concessional Contributions✅✅
Increasing Concessional Contributions❌6❌7
Spousal Super Splitting8❌❌
  • 🞬: No reduction unless Income drops below $250K
  • ❌: No reduction ever
  • ✅: Reduction

Notes:

  1. Technically working less reduces your super by the mandatory contributions, but =11.5% x 15% = 1.7% is closer to 0% than 15%.
  2. TODO Impact on super of buying annual leave
  3. Novated Lease may reduce your mandatory super contributions.
  4. Novated Lease EV might INCREASE your assessable income
  5. Negative Gearing Special is when part of your income IS from investments. The idea is negative gearing can reduce that income. But speak to an accountant. I'm not sure if a Dividend Deduction reduces an Investment Property profit, and visa versa, of it one IP can reduce another IP.
  6. Additional Super Contributions are NOT impacted by DIV 293.
  7. Additional Super Contributions ARE impacted by DIV 293.
  8. Spousal Super Splitting may result in non-monetary benefits that alone are worth the consideration.

Example Calculations

Income $255,000 + $30,000 Super

For this one we need to compare the = 255,000 + 30,000 - 250,000 = 35,000 against the super $30,000. As super is less the assessment is on super. So any additional income will not impact it, but additional super will.

DIV293 Tax = $30,000 x 15% = $4,500

Income $255,000 + $30,000 Super + $5,000 Extra Super

As above but lets put $5k into super as a concessional contribution. This means we now have $35,000 super which matches the $35,000 income + super test, so we can use either.

Extra DIV293 = $5,000 x 15% = $750

Income $255,000 + $30,000 Super + $10,000 Extra Super

As above but we put in an extra $5k of super.

Super is now $40K, and as $35,000 is less we pay DIV 293 on 35,000.

Extra DIV293 = $0.

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