This article was written by Sarah Yu.
A director may be paid superannuation by more than one organisation if, for example, they hold multiple directorships or are an employee of one organisation and paid for being a director of another.
This can cause the director to breach their concessional contribution cap. A director can now avoid this consequence by applying to the Commissioner or Taxation (Commissioner) to opt-out of the Superannuation Guarantee (SG) regime in respect of one or more organisations that pay SG contributions for that director.
What are the consequences of breaching the concessional contribution cap?
The concessional contribution cap for the 2019/2020 financial year is $25,000. Any excess concessional contributions is included in the director's assessable income (with an entitlement to a tax offset of 15% of the excess contributions) and the director must pay an excess concessional contribution charge. A director can choose to have up to 85% of their excess concessional contributions for a financial year released from a superannuation fund.
When can a director apply to the Commissioner?
A director can apply to the Commissioner for a SG employer shortfall exemption certificate (Certificate) using the form 'Super guarantee opt out for high income earners with multiple employers' if:
- multiple organisations pay superannuation for them;
- the director expects that their SG contributions for the year to exceed their concessional contribution cap;
- if the Certificate is granted, the director will continue to have at least one organisation make SG contributions for them; and
- the application is lodged at least 60 days prior to the first quarter to which the application relates although the ATO will accept applications for the quarter commencing 1 January 2020 on or prior to 18 November 2019.
A director will need to apply for a new Certificate each financial year.
If the Commissioner issues a Certificate
If granted, the Certificate cannot be varied or revoked and will be sent to the director and each organisation that is exempted from making SG contributions for the director under the Certificate for the quarters covered by the Certificate.
Impact on a director's remuneration
An organisation is not required to comply with the Certificate and can choose to continue to make SG contributions. Before applying for a Certificate, the director should discuss their application with their organisations and renegotiate their remuneration if a Certificate is granted and the organisation chooses to comply with it.
The excess concessional contribution charge is based on the amount of the excess concessional contributions multiplied by the directors marginal tax rate, less a 15% tax offset multiplied by the rate of the charge that is based on the monthly average yield of the 90-day Bank Accepted Bills plus 3% and is compounded on a daily basis for the whole of the financial year.