If you’re a high income-earner with multiple employers, you may be aware of potential traps with compulsory super contributions that can lead to some hefty and unfair penalty taxes. Fortunately, proposed new laws will give those high income-earners the opportunity to take proactive steps to overcome any penalties.
A person’s concessional contributions (CCs) are capped at $25,000 per annum and include compulsory superannuation guarantee (SG) contributions; any additional salary-sacrifice amounts; and any personal contributions made by the member for which they claim a deduction.
However, an individual with multiple employers, such as a doctor working for a number of surgeries, can inadvertently breach their $25,000 CC cap because they receive compulsory contributions from each of these employers. While an employer is only required to make compulsory contributions of 9.5% on the worker’s earnings up to $55,270 per quarter (or $221,080 per financial year), this applies on a per employer basis.
Excess CCs incur penalty tax at the individual’s marginal tax rate less a 15% offset, plus additional interest charges.
Fortunately, under proposed new laws before Parliament, affected employees who may be at risk of breaching their CC cap will be able to “opt-out” of receiving compulsory contributions from a particular employer (or multiple employers) by obtaining a certificate from the Commissioner of Taxation. (However, you must always have at least one employer to make SG contributions for you.)
The certificate will name the relevant employer and a particular quarter of the financial year and will exempt that employer from having to make SG contributions. You’ll need to apply for a certificate at least 60 days before the beginning of the relevant quarter.
The Commissioner will only be able to issue you a certificate if you’re likely to have excess CCs if the certificate is not issued. To make this assessment, the Commissioner can rely on evidence such as past tax return data and employer payroll data. Once issued, the certificate cannot be varied or revoked. If you choose this opt-out, you’ll be able to negotiate with the exempted employer(s) to receive more pay in lieu of the contributions (and you won’t be required to show proof of this to the Commissioner).
The legislation to enable the opt-out is likely to pass this year, creating some opportunities for 2020 planning. If you’re receiving SG contributions from multiple sources, contact us to begin your remuneration planning and to explore whether the opt-out may benefit you.