Salary sacrifice, a home sale and the Division 293 cliff
Kylie, 57, earns $310,000 as a project director and has $1.55 million in superannuation in accumulation phase. Her employer pays 12% superannuation guarantee ($37,200). She plans to salary sacrifice $30,000 in 2025-26 and to keep making a personal deductible contribution after she drops to three days a week from 1 July 2026, when her salary will fall to $155,000. She owns an investment property producing a net rental loss of $18,000 a year. Her accountant says she can 'catch up' on $95,000 of unused concessional cap from 2021-22 to 2023-24. She and her husband Peter, 62, are selling the family home they bought in 1998 for $1.1 million, settling on 12 March 2026 for an expected $3.4 million. Peter has $980,000 in superannuation. Kylie wants to put as much into superannuation as possible before she retires at 60.
1. Calculate the Division 293 liability on the 2025-26 contributions and show how it changes in 2026-27.
Read the worked answer
2025-26. Concessional contributions = $30,000 salary sacrifice + $37,200 SG = $67,200.
Income for surcharge purposes = taxable income of $280,000 (after the $30,000 sacrifice) + reportable superannuation contributions of $30,000 + the $18,000 net rental loss added back = $328,000.
The Division 293 base is the lesser of the contributions and (income for surcharge purposes + contributions - $250,000): $328,000 + $67,200 - $250,000 = $145,200, which exceeds $67,200. The whole $67,200 is caught, giving extra tax of 15%, or $10,080, payable by Kylie personally unless she elects to release it from the fund. Note the trap: the rental loss increases the liability because it is added back, and the SG counts as well as the sacrifice.
2026-27 at three days a week. Taxable income $155,000 - $30,000 sacrifice - $18,000 rental loss = $107,000; add back $30,000 reportable contributions and $18,000 rental loss = $155,000. Contributions are $30,000 + $18,600 SG = $48,600. $155,000 + $48,600 = $203,600, below $250,000, so there is no Division 293 at all.
The judgement. The same $30,000 sacrifice costs $10,080 less in 293 tax once she reduces her hours. Deductions she can defer from 2025-26 into 2026-27 are cheaper, provided the marginal rate saving still outweighs the deferral.
2. Can Kylie use the $95,000 of unused concessional cap? Explain, and set out the other limits that constrain her contribution strategy.
Read the worked answer
No. The carry-forward of unused concessional cap is available only if the member's total superannuation balance was below $500,000 at 30 June of the year in which the cap was not used. Kylie's balance is $1.55 million, so the $95,000 from 2021-22 to 2023-24 is permanently unavailable. Her annual concessional cap is the standard $30,000, and it includes employer SG - so a $30,000 salary sacrifice on top of $37,200 of SG already exceeds the cap unless part is treated as a personal deduction, which needs fixing before any contribution is made.
Other limits.
- Non-concessional cap of $120,000 for 2025-26, with a full three-year bring-forward of $360,000 available because her 30 June 2025 balance ($1.55 million) is below $1.76 million. Using it commits her non-concessional capacity for 2025-26 to 2027-28.
- No non-concessional contributions once her balance reaches $2.0 million at a 30 June.
- Downsizer contributions of $300,000 each (age 55+, home held 10+ years, paid within 90 days of settlement) sit outside the non-concessional cap and require no balance test, but they do count towards total superannuation balance.
- Division 296 applies 15% extra tax to earnings on balances above $3 million from 2025-26; at $1.55 million she is clear now, but the projection matters.
- Contributions cannot be made after age 75, so the window is finite.
Action. The $30,000 cap must be allocated between SG, salary sacrifice and any personal deduction before contributing, or she will breach the cap.
3. Design the contribution sequence for 2025-26 and 2026-27, with reasoning about the transfer balance cap and liquidity.
Read the worked answer
Objectives: maximise tax-effective superannuation while keeping enough outside to buy a replacement home and fund living costs until she reaches preservation age at 60.
2025-26 (before 30 June 2026):
- Cap total concessional contributions at $30,000 including SG - the $30,000 sacrifice plus $37,200 SG as proposed would be over the cap and the excess is taxed to her at her marginal rate. A sacrifice of roughly $0-$30,000 must be recalculated against actual SG.
- Make the downsizer contributions after settlement and within 90 days (by about 10 June 2026): $300,000 each for Kylie and Peter.
- Use the $360,000 non-concessional bring-forward for Kylie; Peter's $980,000 balance also supports a full $360,000 bring-forward. Order within the year does not matter, because the bring-forward is tested at 30 June 2025, but the downsizer must fall inside the 90-day window.
- Kylie's balance could reach roughly $2.2 million - above the $2.0 million transfer balance cap. That is permitted, but it ends her non-concessional capacity permanently and the excess must stay in accumulation.
2026-27: only the $30,000 concessional cap (including $18,600 SG); no non-concessional capacity while the bring-forward is running; no Division 293.
Liquidity. The home sale is CGT-free under the main residence exemption. If the replacement home costs $1.5 million, about $1.9 million remains; directing $1.32 million to superannuation leaves around $580,000 outside for the home shortfall and pre-60 spending. That is the right balance - money in superannuation is preserved until 60, so locking up everything would force borrowing or a sale of the new home.