‘Good news’ measure announced for preventing concessional cap breaches
A measure to allow high-income earners to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions will help to reduce administration, according to technical experts.
The government has proposed a measure in the budget to allow individuals with incomes in excess of $263,157 to avoid SG payments coming out of wages from certain employers. The measure will apply from 1 July 2018.
“The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions,” the budget papers said.
“Breaching the cap otherwise results in these individuals being liable to pay excess contributions tax, as well as a shortfall interest charge.”
The budget papers stated that employees who use this measure could negotiate to receive additional income, which is taxed at marginal tax rates.
“Due to this, the measure is estimated to have a gain to revenue of $2 million over the forward estimates period through the timing of income tax collection, which is collected sooner than excess contributions tax,” it said.
Fitzpatricks Private Wealth head of strategic advice Colin Lewis said this is a measure that has needed to be addressed for a number of years.
“This particularly impacts medical specialists as they can work for a number of different hospitals and private practices and the requirement for employers to make the compulsory 9.5 per cent, even up to the minimum wage, means that they can still blow their $25,000 when you add it all up, so that's a good measure,” he explained.
Deloitte national SMSF lead partner Kim O’Brien agreed that individuals earning more than $263,000 with multiple employers will welcome the ability to nominate which wages can be excluded from superannuation guarantee obligations.
“Prior to the introduction of this measure individuals could not ‘opt-out’ and were exceeding the contribution cap beyond their control. This is good news for the small number of individuals affected and will also reduce ATO administration,” said Ms O’Brien.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.