Super issues with multiple employersPUBLISHED : | UPDATED:
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Don’t lose track of your superannuation funds.
It started out as a nice round number when compulsory super was introduced in the early 1990s. If you earned more than $40,000 over six months (or $80,000 a year), your employer was not legally obliged to contribute compulsory super on the amount above this threshold. At the time compulsory super was 4 per cent of your salary.
The numbers are now $42,220 a quarter (or $168,880 a year) and a 9 per cent compulsory employer contribution. For the under 50s earning a high income from multiple employers, there is the prospect of penalty tax on their super contributions, especially as the annual contribution limit for under 50s was halved to $25,000 last year, says Meg Heffron of super adviser Heffron.
The superannuation guarantee contributions base concession has particular relevance since the mid-2007 switch to a super system based on contribution limits from a system based on maximum benefit entitlements – the reasonable benefit limits rules.
For anyone who earns a high income from a single employer, the $168,880 income cut-off means there is no risk of an excess contributions penalty.
This penalty is a major risk for younger super savers on higher incomes, a group that in previous years would have been making tax-concessional contributions with some enthusiasm, especially through do-it-yourself funds.
There are limits
Colonial First State’s Deborah Wixted says if there is no limit on employer contributions, once you earned more than $278,000 the 9 per cent compulsory obligation would mean you would exceed the $25,000 concessional contributions limit.
For under 50s on higher incomes, once the $25,000 contributions cap is exceeded, an excess contributions tax of 31.5 per cent is added to the 15 per cent tax that concessional super contributions attract.
Having a cut-off for compulsory super means there is no risk of penalty contributions tax. Under the contributions base rule, an employer is only obliged to pay 9 per cent super on whatever happens to be the contributions base: $42,220 a quarter or $168,880 a year in 2010-11.
For someone on a salary of $200,000, the maximum compulsory contribution is 9 per cent of $168,880, or $15,199. If the employer was paying 9 per cent on the $200,000, or $18,000, the balance of $2801 could be paid as additional salary.
This particular treatment of compulsory contributions is not available to those who earn their income from multiple employers.
Too many payments
A reader highlights a predicament for those in this situation. He is 42 and has multiple unrelated employers. When each pays him the 9 per cent compulsory amount on his income he breaches the $25,000 concessional contribution limit.
Could he insist that one or more employers pay him increased salary rather than super, he asks, thereby reducing his total concessional contributions to the $25,000 statutory limit?
Unfortunately this option is not available to him, says Wixted. Where you have multiple employers who pay you less than $42,220 a quarter, each has a legal obligation to pay super contributions of at least 9 per cent of your ordinary time earnings.
Ordinary means employment earnings from your ordinary hours at work and includes over-award payments, shift loadings, bonuses, commissions and paid leave but not overtime.
Wixted says if the only super contributions he receives are super guarantee amounts, then he has limited room to move.
One possible solution is to explore ways to take some remuneration as non-salary amounts.
Examples of this might include taking fringe benefits instead of salary or, if the employer is related to or controlled by the reader – for example, he is an employee of his own company or family trust – an option is to take dividends or trust distributions instead of salary. Neither of these non-salary amounts is subject to the super guarantee, although they would be taxable income at his personal tax rate.
For instance, if he earns $100,000 salary from each of four separate employers, each of whom is required to contribute 9 per cent or $9000 with a total contribution of $36,000, he would exceed the contributions limit by $11,000, on which he would pay 46.5 per cent tax or $5115.
If he could convert $120,000 of this income into non-compulsory super remuneration it may offer some extra flexibility.
As far as a possible entitlement to an arrangement similar to the compulsory super contributions base being available to those with a single employer, Wixted says the Australian Taxation Office responded to questions about the possibility of multiple employer amounts being treated in the same way by stating there is nothing in the super contributions regime that envisages relief to people in this situation. While both the ATO and Treasury regulators are aware of the multiple employer anomaly, there is no indication this will change in the near future.
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John Wasiliev Smart Investor