It is pretty clear that the Government will decrease the threshold for Div 293 tax to $180,000 in the upcoming budget. This will mean an effective rate of 30% contributions tax for those earning more than $180,000.
But the other rumour that just won’t die is that contribution caps will get reduced…
His first budget might also tighten the generous caps on how much high earners can contribute to super out of concessionally taxed funds. At present $30,000 for most taxpayers, and $35,000 for those over the age of 50, the annual caps might be cut to nearer $20,000.
The problem with $20,000 is that some taxpayers will be forced to make excess concessional contributions.
The SGC maximum super contribution base goes to $51,620 a quarter from 1 July 2016. This threshold is used to determine the maximum limit on any individual employee’s earnings base for each quarter of any financial year for SGC purposes. If an employer pays more than this $51,620 in a quarter the employer is only required to pay 9.5% on $51,620 and not the higher ordinary time earnings.
As an example, if I earn $206,480 (4 x $51,620) and you earn $1,000,000 salary a year, our employers are only required by law to pay $19,615.60 in SG Contributions on these amounts – 9.5% up to the maximum super contribution base.
Now $19,615.60 is less than $20,000 (and leaves us with a massive $384.40 that we can recommend high earners salary package). But from 1 July 2017 this base will get indexed again and if it goes up by the average increase of previous years, the SGC maximum super contribution will get above $52,631.58 a quarter, which is where an employer is required to pay more than $20,000 in SG contributions.
So if the concessional cap is reduced to $20,000, every employee earning more that $210,526.31 would breach the concessional contributions cap as their employer would be required by law to put more than $20,000 into super.
Simple solution if you want to reduce the concessional cap to $20,000… Link the SGC maximum super contribution cap to the concessional contribution cap. The SGC maximum super contribution cap should be the concessional cap divided by the SGC rate divided by the number of quarters (4). This would be:
$20,000 / 9.5% / 4 = $52,631.58