Employers may need to review their salary sacrifice policies as from 1 July 2017 due to changes to the superannuation rules. The most significant change is that, from 1 July 2017, employees will be able to make personal superannuation contributions and claim a tax deduction, rather than needing to salary sacrifice take home pay into superannuation.
We explain below:
- the current position on salary sacrificed contributions;
- the new position as of 1 July 2017; and
- what action employers can take as a result of these changes.
Salary sacrificed contributions into superannuation currently allow an employee to:
- reduce their take home pay and therefore the tax (at their marginal tax rate) that they pay on their take home pay;
- at the same time, increase their superannuation contributions with contributions tax being taken out of those superannuation contributions by the trustee of the superannuation fund at a maximum rate of 15%.
Salary sacrificed contributions into superannuation are counted towards an employee’s concessional contribution cap along with:
- employer contributions (eg superannuation guarantee contributions); and
- personal contributions that are claimed as a tax deduction. A person can only claim a tax deduction for personal superannuation contributions if they satisfied certain conditions including that less than 10% of their income is from salary and wages (the ‘10% maximum earnings condition’).
Prior to 1 July 2017, the concessional contribution cap is $35,000 for people who are 49 years or older and $30,000 for all other people. Salary sacrificed contributions are often made by employees to use up the amount of the concessional contribution cap between the amount of their employer’s compulsory contributions (eg superannuation guarantee contributions) and the employees concessional contribution cap.
If concessional contributions are made that cause the employee to breach their concessional contribution cap, the excess amount is assessable income and taxed at their marginal tax rate.
Changes from 1 July 2017
The changes from 1 July 2017 for salary sacrificed contributions into superannuation are that:
- All employees’ concessional contribution cap will be $25,000 per annum, regardless of their age.
- The 10% maximum earnings conditions for an employee to claim personal superannuation contributions as a tax deduction will be removed.
The effect of these changes are that instead of salary sacrificing take home pay into superannuation, an employee can instead make a personal superannuation contribution and claim a tax deduction.
Action employers can take – salary sacrifice policies
Subject to any requirement to allow employees to salary sacrifice take home pay into superannuation under employment contracts or industrial instruments, employers may wish to remove the operational risks of allowing salary sacrificing because from 1 July 2017 employees can effectively do this themselves by making a personal superannuation contribution and claiming a tax deduction.