For many Australian medical specialists and successful general practitioners, maximising superannuation contributions is a cornerstone of long-term wealth creation. However, doing the "right" thing by salary sacrificing into your super can sometimes result in an unexpected and unwelcome letter from the Australian Taxation Office (ATO).
If you are a high-income earner, you may be caught by the Division 293 tax—a piece of legislation designed to reduce the tax concessions wealthy Australians receive on their superannuation.
Here is exactly how Division 293 works, why it frequently catches medical professionals off guard, and how you can manage the cash flow impact when the assessment arrives.
What is the Division 293 Tax?
Ordinarily, concessional (before-tax) super contributions are taxed at a concessional rate of 15% within your super fund.
However, under Division 293, if your combined income and concessional super contributions exceed $250,000 in a financial year, the ATO applies an additional 15% tax on some or all of those contributions. This brings the total tax rate on your super contributions up to 30%.
The "Combined Income" Trap for Doctors
The most common reason doctors are surprised by a Division 293 assessment is the ATO's definition of "income" for this specific test. The ATO does not just look at your standard taxable income. To determine if you cross the $250,000 threshold, they calculate your "Division 293 income" by adding together:
Taxable Income: Your assessable income minus allowable deductions.
Concessional Super Contributions: Your employer guarantee contributions and any salary sacrifice amounts.
Reportable Fringe Benefits: This is a massive trap for medical professionals holding VMO or staff specialist roles in public hospitals who utilise salary packaging.
Net Investment Losses: If you negatively gear an investment property or a share portfolio, those losses are added back into your income for the Division 293 test.
The One-Off Event
Because the definition is so broad, you do not need a base salary of $250,000 to be hit with the tax. A one-off financial event—such as a large capital gain from selling a property, receiving a substantial dividend from your private practice structure, or a spike in billings—can easily push you over the threshold for a single financial year.
How Much Will It Cost You?
The Division 293 tax is not a blanket 15% penalty on all of your super contributions the moment you cross the threshold. The ATO taxes the lesser of two amounts:
Your total concessional contributions for the year, OR
The exact amount by which your combined income exceeds the $250,000 threshold.
A Practical Medical Example:
Dr. Smith has a Division 293 income of $240,000 and makes concessional super contributions of $25,000. Her combined total is $265,000.
She is $15,000 over the $250,000 threshold.
Because the $15,000 excess is less than her $25,000 in contributions, the extra 15% tax is only applied to the $15,000.
Dr. Smith's Division 293 tax bill will be $2,250.
How to Manage the Assessment
If you receive a Division 293 assessment, you have options for how to manage the liability.
1. Don't Stop Contributing
The knee-jerk reaction for many specialists is to stop salary sacrificing into super to avoid the extra tax. Mathematically, this is usually a mistake. Even with the additional 15% Division 293 tax bringing your total super tax to 30%, this is still significantly lower than the top marginal tax rate of 47% (including the Medicare levy) that you would pay if you took that money as personal income. Superannuation remains a highly effective wealth-creation vehicle.
2. Choose How to Pay
When the ATO issues your Division 293 notice of assessment, you are not forced to pay it out of your personal cash flow. You have two options:
Pay from personal savings: You can pay the liability directly via BPAY or EFT using your after-tax cash.
Release money from your super: You can elect to have your superannuation fund pay the tax liability directly. You generally have up to 60 days from the date of the assessment to complete an election form to release the funds.
3. Proactive Tax Planning
While you cannot simply opt out of Division 293 if you are a high-income earner, proactive structuring can manage its impact. By effectively managing the timing of your capital gains, utilizing family trust distributions appropriately, and reviewing your public hospital salary packaging agreements, you can avoid accidentally crossing the threshold in years where it isn't necessary.
Need to protect your hard-earned wealth?
At Santoro Grieco, we specialise in tax planning, practice structuring, and SMSF strategies specifically for healthcare professionals. If you are concerned about your exposure to Division 293 or want to ensure your wealth strategy is operating efficiently, contact our team today to arrange a strategic review.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial or tax advice. It does not take into account your individual objectives, financial situation, or needs. Tax legislation is complex and subject to change. Always consult with a registered tax agent or financial advisor before making any decisions based on this content.