ATO Superannuation changes that take effect from 1 January 2020

Do you have employees who are salary sacrificing some of their wages into super? Are you salary sacrificing some of your own wages or were thinking about it? If so, there is new legislation that applies from 1 January 2020.

Salary Sacrificing

Salary sacrificing of super is when an employee requests that their employer pays some of their pre-tax wages into their superannuation account. This has two benefits. Firstly, the salary sacrificed amounts boost retirement savings. Secondly, there is a tax benefit - the salary sacrificed amount is taxed at the flat superannuation tax rate of 15% rather than the individual taxpayer’s marginal tax rate.

An employer is required to pay 9.5% of an employee’s earnings into a nominated superannuation account. These contributions are known as the superannuation guarantee.

Prior to 1 January, it was possible for an employer to reduce super guarantee contributions for employees by any salary sacrificed amounts. This meant that if an employee earned $100,000 in a year and salary sacrificed $5,000 then the employer was only legally required to contribute an additional $4,500 to make up the super guarantee amount of $9,500 (9.5%).

However, the legislation introduced from 1 January 2020 has prevented this. After this date, any superannuation guarantee amounts must be paid on top of an employee’s salary sacrificed amounts. Therefore, if an employee earns $100,000 in a year and salary sacrifices $5,000, the employer must contribute $9,500 in super guarantee contributions plus the $5,000 to make a total of $14,500 for the year.

Fortunately, most employers have been paying super guarantee contributions on top of salary sacrifice contributions meaning that for most people there will be no changes.

For employers, it is important to ensure that you are making superannuation guarantee payments on top of any salary sacrificed amounts for your staff. For employees it is worth checking with your employer to ensure that you are receiving the correct benefits.

Please contact our office on 02 9299 7044 or email us on admin@lockwood.com.au if you have any questions regarding these changes.