As we approach the end of the first quarter of 2020, it is important to remember that the rules around payment of the Superannuation guarantee and salary sacrificed super amounts have changed. From January 1st 2020 the Superannuation guarantee is now payable on salary sacrificed amounts. Before January 1st 2020, salary sacrificed amounts counted towards the 9.5% superannuation guarantee that employers must pay on their employees ordinary time earnings.
Example
Frank is a plumber who earns $42000 per quarter. He decides to salary sacrifice $3000 per quarter. This would entitle him to a superannuation guarantee of $3990 ($42000 x 9.5%).
Under the old law prior to January 1st 2020, the employer could count the $3000 sacrificed amount as part of their superannuation guarantee contribution. Therefore, they are only required to make a further contribution of $990. This results in a total quarterly package of $42990.
From the 1st January 2020 the sacrificed amount of $3000 cannot be counted towards an employer’s 9.5% superannuation guarantee contribution. The employer must pay the superannuation guarantee on the full $42000 quarterly package resulting in a full package of $45990.
In this example, the employer would be required to contribute $6990 to their employee’s super fund each quarter. This would lead to a total superannuation contribution of $27960 for the year, this is above the concessional super contributions cap.
The Concessional Contributions Cap
The concessional contributions cap is the amount of superannuation you can contribute to your super account at the concessional tax rate of 15%. In 2017-18 changes came into effect meaning that no matter your age you can contribute up to $25000 per year at the concessional rate. This includes:
- Employer contributions (including contributions made under a salary sacrifice arrangement)
- Personal contributions claimed as a tax deduction
If you pay more than your concessional contributions cap of $25000 into your fund during the financial year it is important to understand that you will be taxed at your marginal rate of 15% PLUS an excess concessional contributions charge of 31.5%, combining for a total tax rate of 46.5% in taxes taken out of your contributions above $25000.
If you think this raises an issue for you or your business, feel free to give us a call to discuss how we can help you navigate the new rules.
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