By Wayne Davy
Law amended around salary sacrifice and super guarantee obligations
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No 1) Bill 2019, which was introduced on 24 July, has been passed by Parliament.
The introduction of the Amendment will ensure an individual’s salary sacrificed contributions can’t be used to reduce their employer’s super guarantee obligations.
What does this mean for employers?
Super guarantee contributions are required to be paid by an employer based on an employee’s ordinary time earnings. Under current legislation, an employer can choose whether or not to include the amount an employee salary sacrifices to their super as ordinary time earnings.
For example, if Jason salary sacrifices 10% of his $100,000 annual income to his super, his ordinary time earnings reduce to $90,000. Based on his reduced salary, Jason’s employer is only required to make super guarantee contributions of $8,550 for the year. But under new reforms commencing 1 January 2020, Jason’s employer will have to make super guarantee payments based on Jason’s pre-salary sacrificed earnings of $100,000 each year. This would increase the super guarantee contributions Jason receives from his employer to $9,500.
Another measure included in the bill will make it illegal for the amounts an employee salary sacrifices to their super to reduce an employer’s super guarantee obligations. Currently if Jason is salary sacrificing 2% of his ordinary time earnings, his employer is only required to make additional super guarantee contributions of 7.5%.
Any changes that are likely to improve the financial security of Australians in retirement is something that we welcome.
These changes apply from super guarantee quarters beginning on or after 1 January 2020.
If you’re unsure whether you’re meeting your super obligations, simply contact the Australian Taxation Office.