WHAT THE TAX?!! 
Super guarantee liability cannot be reduced by salary sacrificed amounts

Legislation has been introduced into parliament which clarifies the operation of the superannuation guarantee shortfall amount for employers. This clarification ensures that the superannuation contributions made by an employer on their behalf is not reduced by salary sacrificed amounts.

Under the current legislation, an employer is liable for superannuation guarantee charge if they do not pay the minimum amount based on the employee's base for a quarter Superannuation Guarantee (Administration) Act 1992). The base amount is based on the salary and wages for the employee which does not take into consideration any salary sacrificed amount.

This technically allows an employer to reduce the mandatory superannuation guarantee amount. For example, an employee who earns $10,000 per quarter has $2,000 salary sacrificed into super. The minimum superannuation guarantee amount which an employer is liable for is the $8,000 paid as salary and wages. As the $2,000 is already paid by the employer (via a salary sacrifice), it removes a potential liability for superannuation guarantee charge.

Proposed new law

The proposal changes the superannuation guarantee shortfall base amount to specifically include salary sacrificed amounts. Therefore, the new calculation for the shortfall base amount is the sum of:

•         total salary and wages paid to the employee each quarter, and

•         any salary and wages that would have been paid to the employee if they didn't choose to have super salary sacrificed.

The amended law gives certainty to employees that their superannuation contributions are paid on their pre-salary sacrifice base amount. However, other reductions to the superannuation base still apply.

Example

Jenny is being paid a salary package of $90,000 per annum, inclusive of superannuation and car benefits. The car benefits (after tax) that are provided make up $15,000 of the package, therefore making her package $75,000 inclusive of super. Her employer is liable to pay 9.5% of this package amount as superannuation guarantee.

•         Superannuation guarantee (per quarter) $75,000 ÷ 4 × 9.5% = $1,781.25 per quarter.

Jenny chooses to salary sacrifice $2,000 per quarter into superannuation. Therefore, the total amount of contributions in superannuation will equal:

•         Superannuation guarantee = $1,781.25 × 4 = $7,125, plus

•         Salary sacrificed amount = $2,000 × 4 = $8,000

•         Total superannuation paid = $15,125 per annum.

The amount paid to superannuation remains under the concessional contributions cap for the year under superannuation law.

Before the new law comes into effect, the employer would only be liable for SG charge if the minimum base amount is not contributed. This is calculated as:

•         $90,000 (package) – $15,000 (car benefit) – $8,000 (salary sacrifice) = $67,000 ÷ 4 × 9.5% = $1,591.25 per quarter.

Closely-held payees

In certain circumstances, the owner of a small business may develop a plan to pay a total "salary and super" component to themselves. Careful considerations must be made to the way these "employment arrangements" are drafted to ensure that superannuation guarantee is provided for.

Best practice is to ensure that the business owners are fully aware that a superannuation guarantee amount is payable on their own salary each quarter. Otherwise, technically the business may be liable for the penalties associated with superannuation guarantee charge (ie interest and the administrative penalty).

The best practice is to have a set amount which is transferred to the business owner each month. Then, calculate the liability for PAYG withholding and superannuation guarantee for each quarter to ensure compliance with the necessary acts. This will:

•         avoid any unintended superannuation guarantee charge, and

•         provide a clear understanding of the difference between the amounts contributed to superannuation during the year and the concessional contributions cap amount for the business owner.

Risk mitigation steps

Most employers should now have payroll software which incorporates their salary and wages, superannuation requirements and other obligations under Single Touch Payroll.

It is advised that employers review the details surrounding their payroll software to ensure it incorporates the new law correctly and consistently for their employees.

Information sourced using CCH iknow