Division 293 for Defined Benefit Members: What’s Different

Key takeaways

• Defined benefit members are treated differently under Division 293.
• The ATO uses notional contributions, not actual contributions.
• Division 293 tax is often deferred rather than paid immediately.
• The tax usually becomes payable when a benefit is eventually paid.

Division 293 is confusing for many people. It is often more confusing if you are in a defined benefit super fund.

The rules still apply, but the mechanics are different. This page explains what changes, why the tax is often deferred, and when it eventually needs to be paid.

What makes defined benefit funds different

In an accumulation fund, Division 293 is based on actual concessional contributions paid into your account.

Defined benefit funds do not work that way.

Your eventual benefit is determined by a formula. You do not see regular contributions credited to an account balance. Because of this, the tax system uses a proxy instead.

What are notional contributions?

For defined benefit members,the Australian Taxation Office calculates notional contributions. calculates notional contributions.

These are an estimate of the increase in the value of your expected defined benefit over the year. The calculation is performed by the fund and reported to the ATO.

Notional contributions are used for Division 293 purposes even though:

• You cannot access them
• They are not paid into an account you control
• They do not represent cash contributions

This is often the first surprise for defined benefit members.

How Division 293 applies to defined benefit members

Division 293 still follows the same threshold test.

If your Division 293 income plus notional contributions exceed $250,000, Division 293 applies.

The key difference is what happens next.

Because you usually cannot release money from a defined benefit fund, the Division 293 tax is often deferred instead of being payable immediately.

What does deferral mean?

When Division 293 is deferred:

• The ATO creates a separate debt account for the defined benefit interest
• The amount is tracked rather than collected
• You receive statements showing the deferred balance

If you hold more than one defined benefit account, a separate debt account is created for each one. The amounts are tracked independently.

Deferral does not mean the tax disappears. It means payment is postponed.

Interest on deferred Division 293 tax

Deferred Division 293 debts that remain unpaid at 30 June each year attract end of year interest.

The interest is added to the deferred balance and becomes part of the amount eventually payable.

You can voluntarily pay deferred Division 293 amounts earlier to avoid interest. This can be done with personal funds or, in some cases, by releasing money from another super fund.

When does the tax become payable?

The deferred Division 293 tax generally becomes payable when an end benefit is paid from the defined benefit fund.

An end benefit usually arises when you:

• Retire
• Leave the employer associated with the fund
• Become entitled to a lump sum or pension from the fund

Certain payments are not treated as end benefits, such as rollovers to a successor fund due to a merger or payments made under severe financial hardship rules.

Once an end benefit occurs, the fund notifies the ATO and the deferred debt is brought to account.

How the final amount is determined

When an end benefit is paid, the ATO compares:

• The balance of the deferred Division 293 debt, and
• The end benefit cap amount provided by the fund

You are required to pay the lower of these two amounts. Payment is due within a set timeframe after the benefit is paid.

At that point, you may be able to pay using a release authority from the defined benefit fund.

Common misunderstandings

• Thinking deferral means exemption
• Assuming the tax will be written off
• Ignoring interest on deferred balances
• Expecting to control notional contribution amounts

Defined benefit Division 293 is largely outside your control. Understanding the timing is more important than trying to optimise it.

Putting it in context

For defined benefit members, Division 293 is rarely something you can manage year by year.

The practical focus is:

• Knowing whether deferral applies
• Tracking the deferred balance
• Planning for payment when a benefit is eventually taken

For a full explanation of how Division 293 works more broadly, see Division 293 tax explained

If you want to sanity check whether you’re likely to exceed the $250,000 threshold in a given year, use the calculator here
Division 293 calculator

FAQs

Why is Division 293 tax deferred for defined benefit members?

Because defined benefit members cannot usually access contributions, the ATO defers the Division 293 tax and tracks it in a separate debt account.

When do defined benefit members have to pay Division 293 tax?

The deferred Division 293 tax is generally payable when an end benefit is paid from the defined benefit fund.