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AUGUST BIZ TIP
Salary sacrifice to superannuation means that an employee’s take home, gross pay is reduced by a nominated amount, which is then paid into their chosen superannuation fund at a tax rate of 15 per cent rather than their normal marginal rate.
There are several important factors to be aware of:
- The salary sacrifice arrangement must be documented in advance in a salary sacrifice arrangement (SSA) declaration, in order for it to be deductible for your company
- Your payroll or accounting system must be set up to include it on the Payment Summaries as Reportable Superannuation Contributions at 30 June
- Your payroll system should maintain a running total of salary sacrifice superannuation and superannuation guarantee superannuation, to ensure the combination of the two does not exceed the annual superannuation concessional contributions cap/s, which are as follows:
- The concessional contributions cap is $25,000 per annum for 2009-2010 financial year and later financial years
- A transitional concessional contributions cap of $50,000 per annum applies for those aged 50 and over for the 2009-2010, 2010-2011 and 2011-2012 financial years.
- Where super contributions exceed annual limits, the amount that exceeds the relevant cap is taxed at an effective tax rate of 46.5 per cent. For example, the excess contributions tax of 31.5 per cent plus the 15 per cent tax that is paid by the super fund itself
- In simple terms, once the cap is exceeded the employee no longer receives the benefit of a low tax rate of 15 per cent and in fact would probably pay more than their usual tax rate, making salary sacrifice to superannuation unfavourable.
Remember that the following items are included in the calculation of the cap in each financial year;
- Your 9 per cent employer contributions for superannuation guarantee purposes
- Salary sacrifice contributions made by all employers in respect of an employee from before-tax income
- Personal super contributions made by a self-employed person.
Whilst technically it is the employees' responsibility to be aware they do not exceed the cap and thus bear the penalty, a good employer also recognises the benefit of helping their employees understand and benefit from superannuation. If in doubt, recommend your employee sees their financial adviser and speak to your business accountant.
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