What high income earners need to know about new Superannuation Guarantee opt-out rules
The measures to allow individuals with high incomes greater than $263,157 to opt out of superannuation guarantee (SG) payments from certain employers has received a warm welcome.
Those who choose to utilise the opt-out will be able to avoid unintentionally exceeding the $25,000 annual concessional contributions cap as a result of compulsory SG contributions from multiple employers.
With the Legislation that enables individuals to opt-out of SG still before parliament, people are yet to be able to utilise the opt-out, however many will be looking to lodge applications once the Bill has been passed and received Royal Assent. Below is a summary of what high income earners can expect in relation to the SG opt-out rules.
How will it work?
An individual with an income that exceeds $263,157 and has multiple employers will be able to nominate their remuneration from certain employers to be excluded from superannuation guarantee legislation. To be eligible individuals will still need to receive superannuation contributions from at least one employer.
Who will benefit?
The changes are expected to benefit high income individuals such as:
- directors or board members of multiple organisations;
- doctors with a private medical practice who also work in the public hospital system; and
- dentists or vets carrying out locum work at multiple practices where they are paid personally for the work they perform.
How to apply?
Individuals will be able to access the relevant form on the Australian Taxation Office (ATO) website. Once completed it’s lodged with the ATO for approval. The completed form will need to be lodged with the ATO at least 60 days before the start of the quarter that will be covered by the exemption certificate.
If approved, the ATO will issue a certificate to both the individual and the exempted employer. The Commissioner will not provide the certificate unless the ATO is satisfied that the individual would have excess concessional contributions if the certificate was not issued.
Things to be aware of
Employers should make sure they do not cease superannuation contributions without the necessary certificate from the ATO.
The certificate is not binding on the employer and so the exempted employer could still choose to make compulsory superannuation contributions if they are cautious of receiving an unexpected tax bill. (Remember, it is employers who bear the risk when SG contributions are underpaid – they become liable for the SG charge, including associated penalties and administration loadings.)
Individuals should note exemptions will not be granted for period beyond the financial year in which they are issued. The ATO have said that in order to provide certainty for employers, once issued, the certificate cannot be varied or revoked.
Those eligible will need to ensure they still receive their full remuneration somehow. They will need to negotiate with the relevant employers to have the forgone contributions paid as additional salary.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.