Salary Sacrifice Super

Today in one of my uni subjects we were talking about salary sacrificing things and the topic of super came up. I was wondering how this actually happens in real life though, does a company simply put more than the 9% SG into the super fund or do they need to add it in separately. What sort of documentation is required for a small business where the 2 employees are also the 2 share holders.

Do you simply transfer the amount from the company into the super fund as you would the SG? Is any amount over the 9% assumed to be salary sacrificed? Can the business then claim a tax deduction for the extra amount? Super would be exempt from FBT and the contribution would not form part of the employee’s assessable income and would not be subject to PAYG withholding tax?

Besides the aged base limits is there anything else that I'm missing? I've had a look on the ATO website but it doesn't really tell me how to go about doing this.

 

When you contribute into super you need to advise them its salery sacrifice. With colonial, I know you put in a different code into the description field, so the two would be seperate contributions. There are limits on how much you can sacrifice, I think its something like $300k over 3 years.

I do believe its still tax deductible for the business.

You can also make a personal tax deductible contribution, which you claim back at tax time. You would also need to work out how much you earn ie what tax bracket your in, as the co-contribution may work out better than the tax you save on salary sacrifice/tax deductible contribution. ie tax rate could be 30% or 40% whereas super tax is 15%. co contribution is up to $1 contribution gets $1.50 from government.

 

I was thinking along the lines of $1k after tax and the rest salary sacrificed. It wouldn't be near the limits, perhaps $10k a year or something like that.

 

thats good, cause up to 1k after tax qualifies for government co-con. You could simple make a personal tax deductible contribution, then you could get back $3-4k depending on your tax rate back from the ATO.

Salary sacrifice would achieve the same thing. ie contribute before tax.

you can read up some stuff here Colonial First State: What is FirstChoice Employer Super?

 

Make sure your employer does not weasel out of their 9% as they don't have to pay that if you are sacrificing enough yourself.

Also make sure they don't reduce your other benefits based on your lower 'salary'. Unlikely in this case as they are also the business owners.

The employment contract must be PROSPECTIVE for sacrifice to be effective.

The employer should lodge a notice of intention to claim a tax deduction with the Trustee (old s.82AAC notice), so the Trustee knows this is a taxable contribution. Many employers don't in my experience !!!

I am unsure without checking whether the employer is only able to claim the deduction when actually paid.

The SGC contribution is part of the taxable contribution limit.

There is no FBT in respect of contributions for an employee to a complying super fund (s136(1) FBTAA86). Also if non-complying where it would be reasonable for the employer to believe it is complying.

Where the employees are shareholders, the contribution must be with respect to their capacity as employees. Otherwise it could be deemed a distribution.

Cheers,

Rob

 

Thanks heaps for your help, the weaseling out of their 9% won't be a problem. I'm asking for my parents so they know some info before they see their accountant. They are the shareholders and the only employees. It is really just a way to put some extra money and pay less tax. I'll get them to check the super fund, I think it is with either Colonial or BT, so there is a very good chance it complies... they don't do the SMSF thing.

I've just done some reading as I wasn't aware "You could simply make a personal tax deductible contribution"... it seems this is only for self-employed people, since they pay themself a salary I don't think they qualify.

What is meant by "Where the employees are shareholders, the contribution must be with respect to their capacity as employees. Otherwise it could be deemed a distribution."?

Thanks again for all your help.

 

Business owners using company funds to pay their private expenses might be treated as receiving non-deductible distributions.

If they have any non-commercial 'borrowing' outstanding at the end of the year then it could fall foul of Division 7A which deems an unfranked dividend to the extent profits are available (a broad concept).

Just be careful with paperwork to trace the money flow. Especially if they are setting-off against their loans to the company.

Cheers,

Rob

 

Got it, thanks for that