The End of Salary Packaged Super

From 1 July 2017 I cannot understand why anyone would salary package super in addition to the 9.5% SG their employer is required to pay for them.

Now I am not saying that it is not worth using up an employee’s entire $25,000 concessional cap (2017/18 cap amount), but I am saying you are crazy if you attempt to get to $25,000 by salary packaging super… There is a much easier way.

From 1 July 2017 anyone, including employees, can make deductible contributions straight to super in addition to their employer’s SGC amounts. This means they need not enter into a valid salary sacrifice agreement with their employer to sacrifice salary into super anymore. They can just make the contribution any time during the year.

This is much easier than making sure the salary sacrifice agreement is”effective” as defined by the 145 paragraphs of  Taxation Ruling TR 2001/10. Especially, this Ruling states clearly that an employee must agree to receive part of their remuneration as superannuation before they have an entitlement to receive that part of their remuneration as salary or wages. This has caused problems for bonuses, leave, payouts…

But all these rules can easily be avoid. And you can avoid all the negotiating with your employer, completing forms with payroll to get the sacrifice set up, remembering to change the amount when circumstances change, and even finding that your employer may have LEGALLY stopped paying your 9.5% SG as your salary packaged super is greater than the required 9.5% and your have a dodgy salary sacrifice agreement!

For example, if an employee wants to salary sacrifice a bonus into super they need to agree with the employer before they have derived the bonus that, whatever the amount will be, will be salary sacrificed. They need to ensure the agreement states this super is in addition to the 9.5% the employer remitted before the salary package. They need to complete any forms needed by payroll and then ensure payroll actually execute the package correctly. So when did the employee derive the bonus? the Taxation Ruling states “it depends” (have a look at paragraphs 97 & 98)

Under the new rules from 1 July 2017, the employee can merely wait until they have received the bonus, contribute it to super, notify the fund on a very simple form and claim a deduction. Yes, the bonus will have tax withheld from it when it is paid but that tax will be returned when the employee lodges their tax return.

So is this the end of salary packaged super. I cannot see why not. But I am sure you will all tell me I have missed something.

PS. If you can convince your client to use the additional tax refund they get each year for topping their employer’s SG contributions up to $25,000 as additional super contribution you might find it easier to convince them that putting money away in super is a good idea…

 

 

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
This entry was posted in FBT, Planning Stuff, Uncategorized. Bookmark the permalink.

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