SPAA calls for ‘opt out’ solution to prevent excess super contributions

SPAA Treasury submission says employees who can prove they are at risk of a contribution cap breach should be able to opt out of SG contributions in advance

Superannuation fund members with multiple employers who breach superannuation contribution caps are being unfairly penalised as a result of their employer’s need to comply with the law, therefore employees who can prove they are at risk of breaching the caps should be able to opt out of 9% SG contributions, according to a new SPAA submission to the Government’s economic adviser, Treasury.

“SPAA is a strong supporter of the 9% Super Guarantee, however, we have become increasingly concerned about its unintended consequences for some SMSF members,” said Andrea Slattery, CEO of SPAA. “For many superannuation fund members with multiple employers, it has resulted in punitive Australian Tax Office financial penalties because total mandated SG contributions exceed that employee’s annual concessional superannuation cap.”

“SPAA believes it is unfair and unjust for super fund members to suffer penalties simply because their employer makes compulsory super contributions for them according to the law.”

Under the law which applies across the superannuation system, a member’s employer is obliged to contribute 9% of an employee’s salary to a complying super fund. Under rules that apply until 1 July 2012
for members over the age of 50, a $50,000 cap applies to concessional contributions made by, or on behalf of a member of a super fund for a financial year.

An employer’s SG obligation has no regard to salary and wages paid by other employers.

“We have proposed a commonsense solution where members can “opt out” of 9% SG contributions where there’s a clear risk that concessional superannuation caps would be breached in the financial
year,” Mrs Slattery said.

Specifically, SPAA proposes that employees likely to be affected be allowed to elect in writing to their employer that they not be liable for the SG contributions. The election would be accompanied by evidence
showing the employee’s concessional cap would be exceeded if the SG contribution was made. This election would be made for each financial year and would remain in force for the entire financial year
unless revoked by the employee.

Ms Slattery says for many employees, breaching the caps is simply the result of having multiple employers through contract style work, for example in the information technology, mining and medical
professions where these arrangements are standard commercial practice. In these instances, a person may contract to a number of contractors and be classified as an employee for SG purposes.
Another group are employed as executive or non-executive director, where it is quite common to hold several directorships and to therefore receive remuneration from a number of unrelated sources.

Concessional contributions which exceed the cap are subject to excess contributions tax at the rate of 31.5%. Excess concessional contributions are then counted against the member’s non-concessional
contributions cap and may be taxed at an additional rate of 46.5% if the excess concessional contributions as well as the member’s non-concessional contributions, exceed the member’s nonconcessional
cap. This could result in tax of about 93%.

“The 9% superannuation guarantee is mandated by government and employers must comply,” Ms Slattery said. “Employees who breach caps due to their employer’s compliance with the law should not be
penalised for this.”

SPAA also believes misalignment of payment rules for concessional contributions for SG purposes and contribution reporting for excess contributions tax purposes is a major problem leading to excess
contributions tax. The Treasury submission outlines a solution where concessional contributions could be allocated to the year to which the SG obligation relates.