You may already be aware of some of the advantages of offering salary sacrificing arrangements to your employees. Here is some information that may help you implement this valuable savings tool, including some benefits for you.
If your employee is under 75 years old, you can claim a deduction on all employer super contributions, including salary sacrificed contributions you make to their fund on their behalf.
However, if the employee has turned 75 years of age, you must pay the super contribution within 28 days after the end of the month that the employee turns 75 years old. The only exception to this condition is if the contribution was required by an industrial award, determination or notional agreement preserving state awards.
There is generally no limit to the amount your employee can salary sacrifice, unless there are limits specified in any applicable industrial laws, award, workplace agreement or employment contract under which your employee is working.
However, when salary sacrificing super contributions, your employee will need to consider how the amount of contributions will affect the amount of tax paid in their fund.
Salary sacrificed and employer SG contributions form part of the member’s concessional contributions in the fund. Concessional contributions are included in the assessable income of the fund and taxed at 15%.
For the 2009/2010 financial year the concessional contributions cap for members aged under 50 is $25,000. A transitional concessional contributions cap applies until 30 June 2012 for people aged 50 or over. The annual transitional cap for 2009/2010 is $50,000.
Where concessional contributions exceed these caps, the excess amount may be taxed, in total, at the top marginal rate (45% plus 1.5% Medicare levy).
Making salary sacrificed super contributions into your employee’s fund may affect your SG obligations in the following ways:
The amount of super guarantee you are required to pay for your employee is worked out on their earnings base. As entering into a salary sacrifice arrangement reduces your employee’s earnings base, it will reduce the amount of super guarantee that you are required to pay.
To enter into an effective salary sacrifice arrangement with your employee, you should have a written agreement that states the terms and conditions of that agreement. If you make the super contributions to an employee’s fund under a salary sacrifice agreement, the sacrificed amount is treated as an employer contribution. This means that the salary sacrificed amount counts towards your super guarantee contribution obligations. If the salary sacrificed super contribution is more than the super guarantee amount you are required to pay (currently 9% of your employee’s earnings), then you would not be required to pay an additional amount on top of the salary sacrificed amount.
The terms of some awards or agreements may require an employer to pay a certain amount of super for an employee or may require super to be paid on the employee’s pre-sacrifice salary. In these circumstances, salary sacrifice amounts may not reduce the employer’s super obligation as stated in the award or agreement.
If you wish to claim a deduction for any sacrificed contributions you make to your employee’s fund, you need to ensure that the contributions are made in the same income year that you intend to claim a deduction.
Lawfully, you are not considered to have made a super contribution until the super fund actually receives the contribution. This means that if you pay contributions by post or through a clearing house, you need to allow enough time for the payment to be received by the super fund before you can consider that you have made the contribution.
When you enter into a salary sacrifice agreement the Australian Tax Office (ATO) needs you to keep relevant records for five years. This includes copies of your agreement and documents showing any expenses.
For more information about tax and salary sacrificing you can visit the ATO website at www.ato.gov.au.
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