Employers with highly remunerated employees or employees with salary sacrifice arrangements are encouraged to review the terms of employment agreements entered into with their employees to ensure they do not cause an employee to become liable for penalty tax.

Concessional Superannuation Contributions

Superannuation contributions may be categorised as concessional (before tax) and non-concessional (after tax). Concessional contributions include compulsory employer superannuation contributions such as the compulsory superannuation levy (currently 9%) and contributions made under a salary sacrifice arrangement.

Recent Changes

From 1 July 2012, the concessional superannuation cap for contributions is $25,000 irrespective of the age of the individual.

Implications for Highly Remunerated Employees

Where employees are contributing 9% of their salary for employees earning more than $277,000, they should consider whether the contribution will cause the employee to have excess contributions.

Previously, for employers over 50, this problem would not have arisen until their salary exceeded $555,555.

Implications for Salary Sacrifice Arrangements

Employers and employees should review existing arrangements where they would result in employer contributions exceeding the $25,000 cap. Again, this is particularly important for employees over 50 who may have been sacrificing larger amounts under the previous caps.

Employers and employees should ensure that employment contracts are sufficiently flexible to allow for any future changes to the concessional contribution cap.

Proposed Changes

The previously announced implementation of an over- 50’s concessional cap of $50,000 for those with superannuation entitlements under $500,000 has been deferred and is due to be introduced from 1 July 2014.