The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP has stated that the government proposes to introduce legislation to no longer permit employers to count Salary Sacrifice Superannuation amounts towards employer mandated Superannuation Guarantee Contributions. The announced changes are just some to have come out of the ATO Superannuation Guarantee Cross-Agency Working Group report released on 14 July 2017.

The following examples sourced from the ATO shows how the current laws operate in regards to salary sacrificing superannuation.

EXAMPLE: SALARY SACRIFICE AND SUPER GUARANTEE COMPARISON

Sally and Zoe each start working for the same organisation for $60,000 a year. Zoe decides to enter into an effective salary sacrifice arrangement with her employer and will sacrifice $10,000 of her annual earnings into her super fund. Sally receives her earnings of $60,000 as salary.

Sally and Zoe are both eligible employees for super guarantee purposes. Their employer is required to contribute a minimum amount into their super funds – that is, 9.5% of their ordinary time earnings. Sally and Zoe's salaries equal their ordinary time earnings.

Calculation of Total Salary and Super
Calculation Item Sally Zoe
Pre-sacrifice salary $60,000 $60,000
Less super salary sacrifice $0 $10,000
Reduced salary or ordinary time earnings $60,000 $50,000
Minimum 9.5% super guarantee $5,700 $4,750
Employer super contributions $5,700 $10,000
Total salary and super $65,700 $60,000

 

As Zoe's salary-sacrificed amount of $10,000 is an employer contribution and is more than the super guarantee amount the employer is required to pay, the salary-sacrificed amount satisfies her employer's super guarantee obligation. This means Zoe's employer is not required by law to contribute an amount to her super fund in addition to the salary-sacrificed amount of $10,000.

Zoe and her employer may agree that her employer will continue to make additional employer contributions equivalent to the super guarantee that would have been payable if not for the salary sacrifice agreement.

EXAMPLE: AGREEMENT FOR FULL SUPER GUARANTEE WITH SALARY SACRIFICE

Zoe and her employer agree as part of her salary sacrifice arrangement that, in addition to the $10,000 she plans to salary sacrifice into her super fund, her employer will make an additional contribution of $5,700. This is the super guarantee amount the employer would have been required to pay based on Zoe's pre-sacrifice salary of $60,000.

Calculation of Total Salary and Super
Calculation Items Sally Zoe
Reduced salary or ordinary time earnings $60,000 $50,000
Employer super contributions $5,700 $10,000
Agreed additional employer contribution $0 $5,700
Total salary and super $65,700 $65,700

 

While it is currently within the law to count the Salary Sacrificed super contributions, most employers do not in practice and continue to make the additional employer contributions; no doubt based in no small part on the salary package negotiations made with a prospective employee.

From 1 July 2017, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 (passed in November 2016) means employees can claim tax deductions for superannuation contributions as a result of the removal of the rule that required individuals to have less than 10% of their income from salary and wages. This may mean salary sacrificing employer contributions become less important to employees as they now have another option.

As with all business matters, payroll and superannuation require diligence to be sure all compliance risks have been addressed and your business has prospective policies to handle the ever changing landscape.

For all matters regarding superannuation investments, we can highly recommend you speak with a financial advisor from our Wealth Management team.

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