Today BRR Media speaks with Martin O’Connor; he’s a Partner with Addisons in Sydney, welcome to BRR Media Martin.

Good afternoon David.

Martin the new financial year has triggered an important change to how much we can contribute to our superannuation each year; it’s a change that could catch out employees, particularly those on a higher income.

Yes David it really has.  Superannuation contributions can be divided into two types, we have concessional contributions and these are before tax contributions, and non-concessional contributions and these are after tax contributions.  The change which has come about this year is that in relation to the concessional contributions the Federal Government has placed a cap of $25,000 for all employees.  So what high income employees in particular need to be aware of, is that all contributions made by their employer, which includes the 9% compulsory superannuation levy, which all employers must make on behalf of their employees, are included in the cap.  Therefore if the employer pays 9% compulsory superannuation levy, up to the maximum contribution base of $183,000 this will account for approximately 66% of the current cap.  If, as a number of executive employment agreements provide, the 9% superannuation levy is to be paid on the total of the employee’s salary once the employee’s salary exceeds $287,000 this will result in the concessional superannuation cap being exceeded and this may occur without the employee even knowing it has happened.

Well it’s certainly a change that not many of us will know about, and on the salary sacrifice side of things if an employee wants their employer to top up their super by salary sacrifice are these amounts included in this cap?

Yes David they are and a lot of executive employment agreements allow for salary sacrifice and one way employees have traditionally taken up tax affective advantage of their salary sacrifice provisions is to have the employer make additional pre-tax concessional superannuation contributions on their behalf.  However with the cap for concessional superannuation this year being set at $25,000 this means that the employee can only contribute a further $8,530 above the maximum contribution base of $183,000 in respect of the 9% compulsory employee contributions before the superannuation cap is exceeded.

And just I guess looking at the penalties what happens if the cap is exceeded and how heavily is this being policed by the ATO?

Well if the concessional superannuation cap of $25,000 is exceeded, any excess contributions above the cap are subject to a penalty tax payment at the rate of 46.5%; however more degrading is the fact that the excessive contributions are also counted towards the employee’s non-concessional contribution cap.  If it turns out that the non-concessional contribution cap is exceeded then the excess concessional component may incur a penalty tax rate of 93%.  The Tax Office does monitor very closely what employee’s contribute by way of non-concessional and concessional superannuation contributions and they police the caps just as rigorously.

And of course many of us don’t really keep a running tally on how much super our bosses are contributing on our behalf so is there anything that employers should be doing to make sure that their workers don’t get stung?

Well my advice is that employers need to be aware of what contributions they’re making on behalf of their employees and if in respect of high income employees that the contribution cap will be exceeded if the employee’s salary exceeds $287,000, I think there needs to be a discussion between the employer and the employee to work out another way that their salary is paid to ensure that the concessional superannuation cap is not exceeded.

Well some really useful pointers there, coming into the new financial year to deal with the change that we have to keep an eye on, but thank you again for your time today Martin.

Thank you David.

That was Martin O’Connor a Partner at Addisons Lawyers here in Sydney, and listeners if you have any questions for Martin about this interview please send a message using the panel on your screen, or you can otherwise email through to law@brrmedia.com and we’ll forward your query.