Prior to 2 October 2019, high income earners were at risk of breaching the annual concessional (tax deductible) superannuation contribution cap of $25,000. The breach can occur, particularly if compulsory superannuation contributions are made by multiple employers.
To avoid breaching this rule, new superannuation law was enacted on 2 October 2019 to enable employees to partially or wholly opt out of receiving super guarantee contributions from their multiple employers. Under previous superannuation law, employers were required to pay 9.5% of an employee’s salary/wage into a complying superannuation fund. Failure to do so resulted a superannuation guarantee charge plus an administration charge and interest.
The new law will apply from 1 January 2020. Eligible employees whose superannuation guarantee contributions exceed the $25,000 concessional contributions cap due to their high salary/wage, need to apply to the ATO for an employer exemption certificate. The employer exemption certificate will notify the ATO that the employee’s salary/wage should not be subject to superannuation guarantee contributions.
If the gross salary/wage threshold is exceeded, the ATO will issue an employer exemption certificate, which releases the employer from the obligation to pay superannuation guarantee contributions. Exemption certificates can be issued for multiple quarters within a financial year but will not extend beyond the end of the financial year. The employee and employer are free to negotiate additional cash or non-cash remuneration in place of the super guarantee contribution contributions. The exemption certificates cannot be varied or revoked after issue.
The application must be lodged with the ATO in the approved form, which is available on the ATO website. The due date for lodging an application is 60 days before the first day of the quarter to which the application applies. The ATO will accept applications for the year ended 30 June 2020 as follows:
- Third quarter commencing 1 January 2020- lodge on or before 18 November 2019.
- Fourth quarter commencing 1 April 2020 – lodge on or before 31 January 2020.
This new superannuation law assists high income earners by releasing additional cash flow and reduces the administrative burden for employers and employees in respect of superannuation guarantee compliance. This amendment also prevents unintended breaching of the concessional cap caused by excess annual contributions over $25,000.
If an employee exceeds the contribution cap, the excess concessional contributions are included in the individual’s assessable income and taxed at marginal rates. The employee is entitled to a 15% tax offset to reduce their tax payable to reflect the contributions tax paid by the recipient superannuation fund.