Adam Gee and James Trainor discuss Directors Superannuation Guarantee amount.
Directors who sit on multiple boards may currently receive superannuation contributions which in aggregate exceed their concessional contributions cap.
This occurs because each company which is paying directors’ fees is required to comply with Superannuation Guarantee obligations, without regard to superannuation contributions being paid by any other company.
When an individual receives employer superannuation contributions in excess of their concessional contribution cap ($25,000 per annum), the excess amount is included in their assessable income, with a non-refundable tax offset for the 15 percent tax paid by the superannuation fund. In addition, an excess concessional contributions charge applies to any additional tax liability related to the excess concessional contribution. Even more unpleasant, excess contributions which are not withdrawn from the superannuation fund count towards the individual’s non-concessional contributions cap ($100,000 per annum) and non-concessional contributions exceeding that cap are taxed at a rate of 47 percent.
For Directors, this has complicated their financial affairs and potentially resulted in additional tax.
However, relief is in sight.
The recent Federal Budget included a proposal to allow individuals to apply to the Australian Taxation Office (ATO) for an exemption from Superannuation Guarantee from 1 July 2018.
Subject to the proposal becoming law, the application can be made by individuals with more than one employer, who expect their income for Superannuation Guarantee purposes to exceed $263,157 for the financial year. The application will need to be made annually, and at least 60 days before the start of the quarter the exemption will apply to. The individual will need to nominate which employer the exemption certificate will apply to and, if approved, the ATO will send the exemption certificate to the individual and the employer. Once issued the exemption certificate cannot be varied or revoked, but the employer can choose to ignore the exemption.
Companies should be aware that Directors may seek to have additional cash paid to them in lieu of the Superannuation Guarantee amount, although the overall fee amount does not need to increase.