Superannuation guarantee exemption for high income earners

From 1 January 2020, eligible individuals with multiple employers can apply to opt out of receiving Superannuation Guarantee Contributions (SGC) from some of their employers.

Currently under the law, an employer is required to contribute superannuation contributions of 9.5% of an employee’s ordinary time earnings (OTE), aka salary and wages, into a complying super fund within 28 days of the end of the most recent quarter for the employee.

There is also legislation in place to limit the likelihood of an employer contributing in excess of the concessional superannuation contributions cap of $25,000 for an employee who is a high income earner. These super contributions are capped using the maximum contribution base (MCB), which for 2019-20 is $55,270 per quarter. Meaning if an employee earns over this amount in a quarter, the employer is not required to provide SGC on salary and wages above this threshold.

However, the legislation up until now has been ineffective in stopping excess concessional contributions from being incurred where an employee has multiple employers, each of whom is required to pay superannuation guarantee contributions in respect of salary and wages. If an employee is earning more than $263,157 across multiple employers then it is likely that the high income earner will breach their concessional superannuation contributions cap.

Where the concessional superannuation contributions cap for the employee is breached, the outcome from this is that the employee would have to include the excess amounts over the contributions cap in their personal income tax return and pay tax at the employee’s marginal tax rate.

Treasury Laws Amendment (2018 Superannuation Measures No 1) Bill 2019 which received Royal Assent on 2 October 2019 addresses this issue by allowing eligible individuals to opt out of receiving some superannuation guarantee contributions where they have multiple employers.

Requirements to be eligible to opt out:

Employees who meet these requirements can complete the “Super guarantee opt out for high income earners with multiple employers form (NAT 75067)” to apply for a super guarantee shortfall exemption certificate.

This certificate will allow one of more of an individual’s employers to cease providing superannuation guarantee contributions for up to four quarters in a financial year. The employee will still be required to receive SGC from at least one employer during those quarters.

The exemption form must be lodged at least 60 days before the first quarter that it is to apply from:

  • 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

Individuals who meet the requirements and are thinking about applying for this certificate should discuss with their employer their intentions so that the employee and employer have the same understanding otherwise the employer could inadvertently disregard the exemption and continue providing SGC. Further if an employee and employer do agree to use this exemption thought needs made of the total remuneration package of the individual so that the employee is financially no worse off than before using this exemption.

Individuals should consult with their financial advisers in relation to their personal circumstances to ensure they are making informed decisions on their remuneration and wealth planning strategies.

The above information is general advice only. This article has been constructed without taking into account your objectives, financial situation or needs.

This article was co-authored by Tristan Harmstorf. For more information contact Tristan on tharmstorf@hlbvic.com.au.