Measures announced in the 2018/19 budget allowing certain high income employees to opt out of receiving Superannuation Guarantee (SG) contributions have now become law.
Who is eligible to opt out
Why opt out
They finally address an anomaly in the system that will reduce the administrative burden and penalisation of affected employees, giving them greater certainty and structure in building their super balances.
For example, say an employee earns $180,000 from employer A and $120,000 from employer B. Currently, the employers are legally obliged to contribute as follows:
A $17,100, being 9.5% of $180,000
B $11,400, being 9.5% of $120,000
As the concessional contributions cap is $25,000, the employee is served with an excess concessional contributions determination for an amount of $3,500 which will attract additional tax up to their marginal tax rate and includes excess charges dating back to the beginning of the financial year to which the excess relates. Had they instead been able to arrange additional wages in lieu of these super contributions, they could have avoided the excess charges and smoothed their tax payments over the year.
The new law is designed to avoid this unintentional breach.
How the new measures work
1. The employee applies to the ATO for a “SG employer shortfall exemption certificate” via the ATO website.
2. The certificate is issued provided the ATO is satisfied that:
- the employee would exceed the concessional contributions cap if not for the certificate;
- at least one of the employee’s employers is still required to make mandated SG contributions on their behalf; and
- it is appropriate to issue the certificate in the circumstances.
Once issued, the certificate is provided to the relevant employee and employers. It releases one or more current employers from their SG obligations for up to four quarters in one financial year.
When to apply
You can apply now via the ATO website.
Eligible employees will need to lodge applications at least 60 days before the first day of the first quarter that the application relates to.
For the quarter commencing 1 January 2020, applications were required to be made before 18 November 2019.
For the quarter commencing 1 April 2020, applications will need to be lodged on or before 31 January 2020.
Considerations prior to applying
Eligible employees should consider their employment arrangements, particularly the effect some awards or workplace agreements may have on their remuneration packages.
For example, employees unable to reach an agreement with their employer to provide additional wages in lieu of compulsory super contributions may find no benefit in applying for the certificate.
For most, it is a chance to eliminate unnecessary charges and uncertainty.
As the deadline for the first round of applications fast approaches, please contact Kristy Baxter or Angela Stavropoulos on 07 3023 1300 or [email protected] for further guidance in this area.