The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has become increasingly concerned about the impost of excess contributions tax in situations where SG contributions exceed an employee’s concessional contributions cap. SPAA argues that it is wrong in principle for employees to suffer penalties simply because their employer makes super contributions for them according to the law. This is the basis of SPAA’s recent submission to Treasury.
In our submission, titled Excess contributions tax and SG contributions, we argue that super fund members are often penalised for contribution cap breaches because they have multiple employers or may work in industries where contractor-style arrangements prevail. SPAA has already put to Government and regulators that in the vast majority of cases, contribution cap breaches are inadvertent breaches, and this is a classic example. In the case of having multiple employers, we have also proposed a commonsense solution; in particular, that members should have the opportunity to “opt out” of the 9 per cent SG contributions where there’s a clear risk that their concessional contributions cap would be breached in that financial year.
If the total salary or wages paid by an employer to an employee in a quarter exceeds the maximum contribution base for the quarter, the total salary or wages to be taken into account for SG purposes is the amount equal to the maximum contribution base.
The maximum contribution base for a quarter is indexed each financial year. For the 2010/11 financial year, the maximum contribution base is $42,220 per quarter. This means for 2010/11 an employer’s SG liability is capped at $3800 per quarter for each employee (that is, 9 per cent of $42,220) irrespective of the total salary or wages paid to that employee.
Sub-section 19(3) of the Superannuation Guarantee (Administration) Act 1992 refers to the total salary or wages paid by an employer and makes no allowance for salary or wages received by the employee from other employers. Therefore, when determining the maximum contribution base for each employee, the employer does not include the salary or wages received by the employee from other employers.
Subject to transitional rules that apply until July 1, 2012 for members over age 50, a $25,000 cap applies to concessional contributions made by, or on behalf of, a member of a superannuation fund for a financial year. Concessional contributions generally include SG contributions, salary sacrifice contributions and personal contributions which you have claimed, or intend to claim, as a tax deduction.
Concessional contributions in excess of the member’s concessional contribution cap are subject to excess contributions tax at the rate of 31.5 per cent. Excess concessional contributions are then counted against the member’s non-concessional contributions cap and may be taxed at an additional rate of 46.5 per cent if the excess concessional contributions, as well as the member’s non-concessional contributions, exceed the member’s non-concessional cap. This could conceivably result in tax of about 93 per cent.
As an employer’s SG obligation has no regard for salary and wages paid to their employee by other employers, it is possible for some employees to receive total salary and wages in a financial year for SG purposes that will generate annual SG contributions in excess of $25,000. Employers are legally obligated to pay SG contributions on behalf of these employees, despite the fact that their employer may incur excess contributions tax for some or all of the contribution.
We believe it is unfair that employees are penalised simply because their employers are obeying the law. In a commonsense measure, SPAA proposes that employees likely to be affected be allowed to elect in writing to their employer that their employer not be liable for the SG charge. The election would be required to be accompanied by documents showing that the employee’s concessional cap would be exceeded if the SG contribution were made.
And, of course, for those who have inadvertently breached the caps already, SPAA continues to encourage the Government to consider our proposed solution to have those excess contributions automatically refunded.
Andrea Slattery is chief executive officer of the Self-Managed Super Funds Professionals’ Association of Australia (SPAA).
