Division 293 tax is familiar territory for most SMSF advisers. What is still catching trustees out though is how and when that tax can be paid from an SMSF.
The issue isn’t the tax itself.
It’s the release authority process, and clients who assume they can simply “pay it from the fund” once the assessment arrives.
For SMSF trustees, getting this wrong isn’t something that is easily fixed - it can mean illegal early access, audit issues and potential penalties. For advisers, it’s one of the areas where proactive guidance can make a big difference.
The key point – it’s a two stage process (assessment first, release authority second).
Once the ATO works out an individual is liable for Division 293 tax, they issue the assessment to the individual. When that bill arrives, many clients assume they’re allowed to pay it from their SMSF.
But that’s only true once the fund has been given a release authority.
A Division 293 tax release authority is an ATO document that allows a specific amount to be released from an individual’s super to pay a specific personal tax liability.
Critically:
The individual’s Division 293 tax assessment is not a release authority.
The ATO doesn’t issue release authorities automatically – individuals need to ask for one.
And they need to make that request within set timeframes.
SMSF trustees must not act until the release authority is issued.
Until that document exists, in most cases, no amount should be paid from the fund.
If Division 293 tax is paid from an SMSF before the release authority is issued, unless the individual is over 65, retired or otherwise allowed to access their super, it’s an illegal benefit payment.
Illegal benefit payments are taxed in the individual’s hands at their marginal rate – in contrast, if the trustee had waited for the release authority, the payment would have been tax free.
The SMSF’s auditor will also likely report the illegal benefit payment to the ATO, which could mean penalties for the trustees.
If an individual wants their Division 293 tax bill paid by their SMSF, they must:
Wait for their Division 293 notice of assessment to issue (this won’t generally happen until they lodge their personal return and the SMSF has also lodged its return for the particular year).
Log in to their myGov account.
Select Super, Manage, Division 293 election and complete the details.
This election should ideally be made within 60 days of the notice of assessment. However, this is one of the situations where the Tax Administration Act allows the ATO discretion to accept late elections. Individuals in this situation can call the ATO or ask their agent to call on their behalf.
Note, Division 293 tax must be paid within 21 days of the notice of assessment. Unless an individual makes their election quickly, the release authority won’t be received in enough time for the SMSF to make payment before the tax is due. In that case, the member will have to pay the tax themselves and then wait for reimbursement.
Once a valid Division 293 release authority is received, the SMSF trustee must:
pay to the ATO (ie not the individual) the amount stated in the authority within 10 business days, and
respond to the ATO to confirm payment has been made, again within 10 business days.
The ATO will:
offset the amount against the individual’s Division 293 tax bill (if not already paid),
offset the balance against any other taxes or Australian Government debts the individual has, and
refund the remaining amount (if any) to the individual.
These days most release authorities issued to SMSFs come via SuperStream. The fund’s accountant will need to let the trustee know it has arrived, the amount to pay and the payment reference number to use. Once the amount is paid, it’s important the fund’s accountant sends a message to the ATO (again via SuperStream) to confirm the authority has been complied with.
The ATO recently reported that about a quarter of SMSFs who receive release authorities are not responding to them, which can lead to penalties on the trustee.
Can an SMSF pay a member’s Division 293 tax?
Yes, but generally only after the ATO issues a Division 293 release authority to the fund. Paying Division 293 tax from the SMSF before the release authority is received may be an illegal benefit payment unless the member has met a condition of release (for example, retirement after age 60, reaching age 65, or another permitted condition).
Is a Division 293 notice of assessment the same as a release authority?
No. The notice of assessment tells the individual how much Division 293 tax they owe. A release authority is a separate ATO document that authorises a super fund (including an SMSF) to release a specified amount to the ATO to pay that liability.
What are the key timeframes SMSF trustees need to know?
Common timeframes include:
The individual must generally elect for a release authority within 60 days of the Division 293 tax assessment, if they want their fund to pay the bill.
Division 293 tax is due within 21 days of the notice of assessment.
Once an SMSF receives a release authority, the trustee must pay the ATO and confirm compliance within 10 business days (including where the authority is received via SuperStream).