Super change for those on high incomes

If the budget is passed, high-income taxpayers will soon be able to ask an employer not to force them to receive further compulsory super contributions once the $25,000 annual limit is exceeded. This will benefit both the taxpayer and the Australian Tax Office.

Currently, employer contributions beyond $25,000 trigger additional contributions tax to increase the tax payable up to the recipient's personal marginal tax rate. Collecting this tax complicates administration for both the Tax Office and the relevant super fund.

A further complication arises from the July 1, 2017, changes that restrict new undeducted contributions once the total super account balance exceeds $1.6 million. Clearly, the budget measure is designed to reduce the situations where total employer super contributions exceed $25,000 annually.

Unfortunately, the budget change only helps people with multiple employers and only in respect to compulsory super contributions. Even in these situations, the taxpayer will lose out if the employer doesn't pay additional income in lieu of compulsory super contributions. Therefore, the proposed change places the decision whether to receive compulsory super in the hands of the employee.

There are many other situations where taxpayers end up facing penalty tax bills on employer super contributions more than the $25,000 annual cap. Two glaring instances of this are the treatment of accumulation fund members employed by the federal government and by universities.

Both these employers pay employer super at levels much higher than those required under the 9.5 per cent of salary compulsory super level. They do not offer employees the option of restricting their employer contribution to $25,000 and receiving the balance of the contribution as additional salary.

There are no legal restrictions preventing these and other employers from pursuing this approach, which would simplify the arrangement for both the Tax Office and their employees. Currently, federal government accumulation fund members earning more than $163,000 and tertiary accumulation fund members earning more than $147,000 are breaching the $25,000 annual contributions cap, thereby requiring the Tax Office to apply the penalty tax provisions.

These people would benefit from action like that in the budget to allow them to take their annual employer super contribution more than $25,000 as additional wages.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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