OPTING OUT OF SUPERANNUATION GUARANTEE (SG)
By Rebecca Lowe
From 1 January 2020, individuals with multiple employers will be able to opt-out of receiving superannuation guarantee contributions, to avoid unintentionally breaching the concessional contribution cap.
As most people are aware, employers are obligated to make superannuation guarantee (SG) payments for employees, currently at the rate of 9.5% p.a. For high income earners, SG payments are calculated on the maximum contribution base, currently $55,270 per quarter.
Where individuals have multiple employers, each of their employers are required to make SG payments, which can sometimes lead to a breach of the concessional contribution cap, currently $25,000 p.a.
The new legislation means that these individuals with multiple employers, can now apply to the Australian Tax Office (ATO) to receive an employer shortfall exemption certificate. This certificate means an employer does not need to pay SG in relation to the individual. For an employer shortfall exemption certificate to be issued, the ATO must be satisfied that:
- The individual is likely to exceed their concessional contribution cap for the Financial Year that includes the specified quarter(s) in the application; and
- After issuing the certificate the individual will have at least one remaining employer who is still obligated to provide SG contributions; and
- It is appropriate to issue the certificate in the circumstances.
The ATO can issue a certificate for a single quarter, or multiple quarters in a financial year and as the certificate can only relate to quarters in a financial year, an application must be made for each year (if needed).
To meet the conditions outlined above, an individual must be receiving total employment income of at least $65,789.47 per quarter to exceed the concessional contribution cap, or in excess of $263,157.89 per financial year.
The legislation is most beneficial to high income earners with multiple employers, to avoid the interest charges and administrative burden of dealing with excess concessional contributions. However prior to implementing this legislation it is important to consider that for many individuals, SG is considered part of their total employment package. Therefore individuals who opt out of receiving SG from an employer may wish to negotiate additional salary or other remuneration with their employer so they are not disadvantaged.
It is important to note that individuals who are likely to exceed the concessional contribution cap as a result of personal deductible contributions or voluntary salary sacrifice contributions, will be excluded from opting out of SG. Similarly, individuals who only have one employer cannot utilise this legislation.
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