SALARY PACKAGING SUPERANNUATION GUIDE TO EMPLOYEES

Transcription

1 SALARY PACKAGING SUPERANNUATION GUIDE TO EMPLOYEES Superannuation Introducing Salary Packaging Salary packaging has been made available to all staff of the University through the Enterprise Agreement process. This booklet explains salary packaging and the procedures staff will use to benefit from its introduction. 1.1 What is "salary packaging"? It is arranging your remuneration so that your income (or Pay As You Go - PAYG) tax is legitimately reduced. As implemented at the University, "salary packaging" meets your and the University's tax obligations. Essentially, you pay the cost of the benefit (which you decide to 'package') from your "before-tax" salary. If the benefit attracts fringe benefits tax (FBT - see below) or any administration fee, that is also paid from the "before-tax" salary. The diagrams below show schematically the way 'salary packaging' employee superannuation, for example, results in an increase in take home pay, after income tax is paid. NORMAL Gross Salary WITH PACKAGING Gross Salary Less PAYG Tax Less Superannuation Contribution Less Superannuation Contribution Less PAYG Tax Difference TAKE HOME PAY TAKE HOME PAY Human Resources Division 1 July 2014

2 In normal circumstances, income tax is paid on the full gross salary indicated by the arrowhead in the left hand diagram. With salary packaging, income tax is paid on the amount indicated by the arrowhead in the right hand diagram. 1.2 What can be salary packaged? A range of items can be salary packaged. These include employee superannuation contribution, university parking, portable computers, and motor vehicle leases. 1.3 What is "Fringe Benefits Tax" (FBT)? FBT was introduced in 1986 to tax the value of benefits given to employees by their employer. It is a tax usually paid by employers on benefits provided to employees or people associated with employees (eg family members). The FBT rate is effectively equivalent to % of the value of the benefit. Motor vehicles attract a reduced rate of FBT while university parking, portable computers, and superannuation payments are exempt from FBT. When items are 'salary packaged', the cost of the FBT is included with the value of the item and is paid by the employee from his/her pre-income tax salary. Generally, this means that items that are either exempt from FBT or attract a reduced FBT provide the most advantage for salary packaging. 1.4 What percentage of gross salary can be packaged? Generally, the maximum amount of your gross salary that will be available for packaging will be 50% however an employee may specifically request a higher percentage be packaged as superannuation. 2. ADMINISTRATIVE PROCEDURES 2.1 Who is eligible for salary packaging into Superannuation? All University staff who are on continuing appointments, or fixed-term contracts for more than 2 years, or research staff who are members of either UniSuper Defined Benefit Division or UniSuper Accumulation 2 are eligible to salary package their standard UniSuper member contributions and/or any voluntary contributions. Staff on contracts which provide for UniSuper Accumulation 1 membership (generally those appointed for less than two years) and casual staff are Human Resources Division 2 July 2014

3 eligible to package voluntary superannuation contributions into their UniSuper Accumulation 1 account. Employer superannuation contributions that are required to meet the Superannuation Guarantee (currently, 9.5%) are separate and in addition to any member salary packaging into superannuation. 2.2 Decision to Package or to Stop Packaging The decision to package is entirely voluntary. The University advises that you should consult a licensed financial planner before making the decision. You may stop packaging any element of your remuneration by giving one month's written notice to the Director, Human Resources Division. For staff working in Australia on a temporary resident visa, special rules apply in relation to the taxation of their superannuation benefit (please see section for a basic guide to those provisions). Temporary residents who will claim their superannuation benefit after permanently leaving Australia are especially advised to seek professional financial advice prior to entering into a superannuation salary packaging arrangement. 2.3 Application You apply to salary package an element of your remuneration by completing the relevant "Salary Packaging Authority Form" and sending it to the administrative section identified on the form. The form to be used for packaging employee superannuation contributions is located at Please download and complete this document then send it to: Employee Benefits Section, Human Resources Division, J.D. Story Building. 2.4 Administration Salary packaging will be administered by Employee Benefits Section, Human Resources Division. For superannuation matters, please contact Employee Benefits Section on extensions 53444, 52539, or For other salary packaging matters, please telephone the Salary Packaging Officer on extension Administration Fee There is no fee for salary packaging into superannuation. Human Resources Division 3 July 2014

4 3. SUPERANNUATION 3.1 Approved Schemes Salary packaging of superannuation contributions is only permitted to schemes that are approved by the University. Those schemes are: UniSuper Defined Benefit Division or UniSuper Accumulation 2 QSuper (Defined Benefit Plan) QSuper (State Plan) University of Queensland Superannuation Plan (UQSP) UniSuper Accumulation 1 QSuper (Accumulation Plan) Subject to the rules of your superannuation fund, you may salary package to replace any required or standard member contribution to your superannuation scheme and/or elect to top-up your superannuation holdings by making additional voluntary contributions via salary packaging. 3.2 Clarifications Substitution of a salary packaged contribution to replace any required aftertax member contribution will not affect the amount of the superannuation benefit (i.e. your final payout at retirement) that you receive from your plan, provided that the grossed up salary packaged contribution allows for the payment of contributions tax. However, salary packaged contributions will have an effect on the amount of superannuation entitlement that will be subject to tax assessment. Where benefits are derived as a multiple of average superannuable salary such as in UniSuper Defined Benefit Division, QSuper (Defined Benefit Plan) or QSuper (State Plan), the salary on which your benefits are based remains the salary that you could have received from your salary classification had you not entered into salary packaging. The University s employer contributions to your superannuation will remain unaltered, eg in UniSuper Defined Benefit Division or UniSuper Accumulation 2, the employer contributions will remain 17.0%. The contributions will reference the classification rate for your position in the same manner as it would if you were not salary packaging. 3.3 Financial Advice Prior to commencing a salary packaging arrangement into superannuation, the University strongly recommends that you seek independent financial advice to ensure that the arrangement will be tax effective for you. This should be obtained from a licensed financial planner, preferably one who does not have ties to major financial institutions Human Resources Division 4 July 2014

5 3.4 Types of Employee Contributions that may be packaged Member contributions If you are a member of the UniSuper Defined Benefit Division, UniSuper Accumulation 2, QSuper (Defined Benefit Plan), QSuper (State Plan) or The University of Queensland Superannuation Plan (UQSP), you may elect to cease member contributions from after tax resources and instead pay those contributions by way of a salary packaged contribution. Except for QSuper Accumulation Plan, the member contribution will (or should) be grossed up to account for the standard 15% contributions tax. For example, in the case of UniSuper Defined Benefit Division or UniSuper Accumulation 2 membership, a full contributor who had elected to make 7.0% member contributions from after tax salary, would cease that contribution and instead ask the University to pay an 8.25% contribution from salary packaged funds. Under QSuper (Defined Benefit Plan) and QSuper (State Plan), the trustee does not require the member contribution to be grossed up to account for the contributions tax. However, unless the contribution is grossed up i.e. changed from 5.0% after tax to 5.88% pre-tax, the member benefits will decrease. It is recommended that members use the grossed up method. Salary packaging member contributions will only be permitted where the whole of the member contribution is salary packaged Additional top-up contributions to superannuation Top-up contributions are permitted to UniSuper Defined Benefit Division, UniSuper Accumulation 2, UniSuper Accumulation 1, QSuper (Defined Benefit Plan), and QSuper (Accumulation Plan). You must already be a member of the relevant plan to establish a topup salary package arrangement. UniSuper Defined Benefit Division members may make additional top-up contributions to the accumulation section of their membership. Top-up contributions may be subject to an administrative charge imposed by the receiving fund. Inquiries concerning superannuation issues should be directed to the Employee Benefits Section (telephone extension 53444, 52539, 54668, or 57271). Human Resources Division 5 July 2014

6 3.5. Taxation Issues There are some taxation elements to superannuation that you need to consider. The following is a guide to these issues. It is not possible to cover the full ramifications of these issues in each individual's particular circumstances and you are advised to seek professional financial advice as to the impact of these issues on your superannuation benefits. The tax issues outlined below relate to Australian tax provisions only. If a staff member is also required to lodge taxation returns in another country, the staff member should seek professional taxation advice to understand if contributions to an Australian superannuation fund, or the holding of an Australian superannuation benefit, or the receipt of benefits from an Australian superannuation fund, have any impact on their overseas tax assessment. Payments to superannuation do not attract Fringe Benefits Tax but are subject to superannuation taxation requirements. These are outlined below. It is important to note that when you 'package' your employee contribution, it is then deemed by the Australian Taxation Office to be an employer contribution, and the tax rules relating to employer contributions apply to the packaged amount. It is also important to note that the Federal Government imposes maximum contributions limits per annum. There are separate limits applying to (a) Nonconcessional contributions i.e. after-tax contributions, and (b) Concessional contributions, i.e. generally the sum of salary packaged contributions plus employer superannuation contributions. Exceeding the relevant limits has additional tax implications. The limits are discussed under section Contributions Tax Salary packaged superannuation contributions are deemed to be employer contributions and therefore are normally subject to 15% tax on receipt by the fund. This means that you will need to have 8.25% of your gross salary deducted as the packaged amount of your contribution, if you are in UniSuper Defined Benefit Division or UniSuper Accumulation 2 and if you had been maintaining contributions equivalent to 7.0% after tax contributions. Even though you will have 8.25% of your gross salary deducted before tax, this is less costly to you in your fortnightly pay than having 7% deducted from your after-tax salary. The following examples (Professional and Academic) show how the superannuation and income tax elements are treated in normal Human Resources Division 6 July 2014

7 circumstances and with salary packaging. PROFESSIONAL STAFF EXAMPLE HEW - LEVEL 6 (top point) - UniSuper DBD/Accumulation 2 NORMAL PACKAGING Salary $73, Salary $73, Less Tax $16, Less Super $6, Net $56, Net $67, Less Super $5, Less Tax $14, Take Home Pay $51, Take Home Pay $52, Increase = $ 1, = 2.28 % increase after tax ACADEMIC STAFF EXAMPLE (SENIOR LECTURER, (TOP POINT) UniSuper DBD/Accumulation 2 NORMAL PACKAGING Salary $119, Salary $119, Less Tax $34, Less Super $9, Net $84, Net $109, Less Super $8, Less Tax $30, Take Home Pay $76, Take Home Pay $78, Increase = $ 2, = 3.07 % increase after tax From 1 July 2014, the standard 15% contributions tax applies provided that: the person s total concessional contributions do not exceed a maximum limit, and the person has provided their Tax File Number to their superannuation plan, and the person s adjusted income is less than $ 300,000 in a financial year. If the above conditions are not met, additional tax will be levied on the relevant contribution. The maximum concessional contributions limit from 1 July 2014 is $ 30,000 per annum (assessed on a financial year basis, i.e. year ended 30 June basis) for persons under age 50; and $ 35,000 per Human Resources Division 7 July 2014

8 financial year for persons attaining age 50 during the 2014/15 financial year. Except where a person is deemed by the Australian Taxation Office to be self employed, the concessional contributions limit will generally be the sum of: all salary packaged contributions to superannuation, plus, all employer superannuation support from all sources. Concessional contributions in excess of the relevant limit will be taxed at the taxpayer s marginal tax rate plus Medicare levy and Disability Support Levy (less the 15% tax already applied to the excess contributions). The Australian Taxation Office may also apply an interest penalty. To help offset the additional tax, the member may be able to seek a refund from their superannuation fund of up to 85% of the excessive concessional contributions. It is advisable for each staff member to closely monitor the sum of their salary packaged superannuation contributions plus employer superannuation support to ensure that they do not exceed the concessional contributions limit, or, should this happen, that the staff member is aware of the full taxation consequences of having done so. For persons with an adjusted income of $ 300,000 or more, the Federal Government will apply a total contributions tax rate of 30% to concessional contributions that are not in excess of the concessional contributions cap. The additional 15% tax is referred to as Division 293 taxation. Where a person fails to provide their Tax File Number to their superannuation fund, any salary packaged contributions to superannuation plus employer contributions may be subject to tax at 50.0%. To avoid this complication, the University recommends that staff members lodge their tax file number with their superannuation fund Tax when benefits are received (e.g. at retirement) From 1 July 2007, superannuation benefits paid from a taxed superannuation source (such as UniSuper, or Q Super, or UQSP) to a person aged 60 or above, who is other than a temporary resident of Australia, will be not taxed in Australia, irrespective of how the benefit is taken, i.e. taken as a lump sum or in a pension format. Superannuation benefits paid to members under the age of 60 are usually assessable for taxation. Whether or not tax applies depends upon a number of factors, including the extent of benefits paid and also the manner in which they are paid (e.g. as a lump sum or as an Annuity or pension). Please note that a person eligible for superannuation benefits prior to age 60, may voluntarily elect to invest the benefits within superannuation until, or after, age 60. Human Resources Division 8 July 2014

9 Except for Temporary Resident members, lump sum retirement benefits paid from a taxed superannuation source to a member aged between 55 and 60 are divided into two components a tax free component and a taxable component. Salary sacrifice contributions would form part of the taxable component. The tax free component is paid tax free. The taxable component has a tax free element (for the 2014/15 tax year, the tax free element is $ 185,000). The taxable component in excess of the tax free element is taxable at 17.0%. Pension taxation in respect of a person aged between 55 and age 60, is quite complex. If the pension is payable from a taxed superannuation source, the pension is assessed against personal income tax rates after having regard to any tax free deductible amount (e.g. for account based pensions, this is the ratio of the tax free component of the lump sum divided by the total lump sum used to establish the account based pension). The tax assessable portion is then eligible for a 15% tax offset. Depending upon the level of pension being received, this may eliminate the tax liability or substantially reduce the tax impact. A pension payable from a taxed superannuation source to a person under age 60 is only subject to tax assessment until the recipient attains age 60. In the process of deciding whether to salary package your employee superannuation contribution, you have to weigh superannuation contributions tax plus any superannuation tax at the date of payment from the superannuation fund (e.g. at retirement) against the after-tax cash savings resulting from packaging across the years to retirement Tax on Early Withdrawal Temporary Residents Departing Australia (applies only to certain temporary residents here in Australia on eligible visa categories) Temporary residents are eligible to claim their superannuation benefits when they depart Australia permanently. The taxable component of the superannuation benefit (which will include the salary sacrifice contributions) will be subject to taxation at 38% (the rate applicable for the duration of the Budget Repair Levy). In many cases, the tax on the benefit being received plus the contributions tax already paid will exceed the person s marginal tax rate. Temporary residents who will claim their benefit after permanently leaving Australia are advised to seek professional financial advice prior to entering into a salary sacrifice arrangement. If a temporary resident does not claim their superannuation benefit (less tax) within six months of permanently leaving Australia, the ATO will instruct the member s superannuation fund to close their membership and pass the superannuation benefit to the ATO as unclaimed monies. The temporary resident may then claim the benefit directly from the ATO (less tax). Human Resources Division 9 July 2014

10 Should a person who has entered Australia on an eligible temporary resident visa subsequently move to permanent residency status or otherwise gain Australian or New Zealand citizenship, their superannuation from that date will no longer be subject to the rules applicable to temporary residents Taxation Time-frame With the exception of temporary residents who must claim their superannuation under Departing Australia Superannuation Payment (DASP) rules, the following diagram summarises the taxation levels, and the timeframe at which they are paid. Time of Taxation Taxation applying Each Fortnight Contributions Tax (15%) Possible adjustment at the end of the financial year Excess concessional contributions : taxed at the taxpayer s marginal tax rate plus Medicare Levy, less the 15% contributions tax already paid on the excessive contributions. The ATO may also apply an interest penalty. e.g. for a taxpayer whose taxable income is between $ 37,000 and $ 80,000, the additional tax on excess concessional contributions would be 19.5% (34.5% %) If the member s TFN is not provided to their super fund, contributions tax of 50.0% applies i.e. another 35.0% on top of the standard 15.0% contributions tax If adjusted income is greater than $ 300,000 (30.0%) i.e. another 15.0% on top of the standard 15.0% contributions tax. This additional tax (Division 293 taxation) only applies to the non-excessive component of concessional contributions At retirement from a taxed super fund* (assuming a lump sum is selected) Payout tax on the taxable component of the benefit * Up to $ 185,000 - Nil Above $ 185, %. *assumes no Tax Free Component and the benefit is taken prior to age 60. Human Resources Division 10 July 2014

11 3.6 Possible loss of eligibility to claim a superannuation cocontribution from the Federal Government. Before electing to salary package into superannuation, those persons whose Total Income (assessable income; plus reportable fringe benefits; plus Reportable Employer Superannuation Contributions i.e. salary packaged superannuation contributions) for a financial year is less than $ 49, should weigh up any benefit from salary packaging against the possible loss of entitlement to claim a co-contribution. The Federal Government co-contribution applies to eligible personal superannuation contributions (not salary packaged contributions) made by income earners whose income is under the $ 49,488 threshold. The co-contribution is a contribution made to your superannuation account by the Federal Government provided that you meet the Government s eligibility criteria. You may be eligible for the co-contribution if: you made personal contributions (not including salary packaged contributions) to a complying superannuation fund or Retirement Savings Account (RSA). you have lodged an income tax return for the financial year your total income (generally, assessable income; reportable fringe benefits ; and reportable employer superannuation contributions i.e. salary packaged superannuation contributions) is less than $ 49,488 in a financial year from 1 July Different income thresholds applied for earlier financial years. you did not hold an eligible temporary resident visa at any time during the financial year in question you are less than 71 years old at the end of the financial year in which the contribution was made you received at least 10% of your total income from eligible employment, or from conducting a business, or a combination of both. The amount of co-contribution that is payable depends upon the claimant s income and the extent of their personal contributions made during the financial year. It will be paid at the rate of 50 cents for every $ 1.00 of eligible member contributions up to the specified maximum (please see the chart below). From 1 July 2014, the maximum co-contribution of $ is available to an eligible person whose income is assessed as $ 34,488 or less. The maximum amount of co-contribution phases out by around 3.3 cents per dollar of income above $ 34,488. The co-contribution phases out completely at an income of $49,488. For example, a UniSuper Defined Benefit Division or UniSuper Accumulation 2 member who has an income of $ 30,000, may make 7.0% contributions to the plan from their after tax salary. Over a full tax year, the member would personally contribute $ 2, to their UniSuper account. Provided that the person s income for co-contribution purposes was assessed as $ 34,488 or less, and the person met Human Resources Division 11 July 2014

12 the eligibility criteria (listed above), the Federal Government would then provide an additional co-contribution of $ to that person s UniSuper account. A chart of the maximum co-contribution available is as follows: Income for Co-contribution Purposes: (Assessable Income, plus Reportable Fringe Benefits, plus Reportable Employer Superannuation Contributions) Maximum Co-Contribution Eligible Member Contribution required to qualify for the maximum co-contribution $ 34,488 or less $ 500 $ 1,000 $ 35,488 $ 466 $ 927 $ 36,488 $ 433 $ 866 $ 37,488 $ 400 $ 800 $ 38,488 $ 367 $ 734 $ 39,488 $ 333 $ 666 $ 40,488 $ 300 $ 600 $ 41,488 $ 267 $ 534 $ 42,488 $ 233 $ 466 $ 43,488 $ 200 $ 400 $ 44,488 $ 167 $ 334 $ 45,488 $ 134 $ 268 $ 46,488 $ 100 $ 200 $ 47,488 $ 67 $ 134 $ 48,488 $ 33 $ 66 $ 49,488 $ Nil $ Nil The Australian Taxation Office will work out a person s entitlement to receive the co-contribution based on information supplied by the person s superannuation fund and also information supplied directly by the person through the lodgment of their income tax return. The co-contribution will not apply to contributions a person makes in respect of their spouse. Human Resources Division 12 July 2014

13 3.7 Reportable Employer Superannuation Contributions From 1 July 2009, the University is required to include Reportable Employer Superannuation Contributions on the employee s annual Payment Summary (previously referred to as a group certificate ) What are Reportable Employer Superannuation Contributions? Reportable employer superannuation contributions are effectively the sum of any superannuation contributions made under a salary sacrifice arrangement plus any extra contributions to a superannuation fund for an employee where the employee is able to influence whether that employer contribution is paid as superannuation rather than assessable income Are the usual UQ employer contributions to my superannuation fund included as reportable employer superannuation contributions? No. Employer contributions that are required to be paid under the following are not reportable employer superannuation contributions: superannuation guarantee law, an industrial agreement, the trust deed or governing rules of a superannuation fund, a federal, state or territory law For example, the standard 9.5% or 17% employer contributions to UniSuper are not reportable employer superannuation contributions Impact of having a reportable employer superannuation contribution Reportable employer superannuation contributions are not included in the employee s assessable income for PAYG taxation purposes. However, any such superannuation contributions will be reported in a separate field on the employee s Payment Summary. From 1 July 2009, any such contributions are included in the income tests for the following benefits and obligations: Higher Education Loan Programme (HELP) and Student Financial Supplement Scheme (SFSS) repayments Medicare levy surcharges Human Resources Division 13 July 2014

14 senior Australian tax offset pensioner tax offset all dependant tax offsets mature age worker tax offset superannuation Co-Contribution spouse superannuation contributions tax offset (spouse income test) deduction for personal super contributions Centrelink benefits (including family tax benefits, child care benefits) Child Support Agency arrangements Before arranging to salary sacrifice to superannuation, an employee may wish to review their entitlement to the range of benefits and obligations listed above. In some cases, employees may need to provide new withholding declarations to ensure that amounts of tax withheld from their salary or wages during the income year best meet their expected liability, taking into account the changes to income tests. For example: If you, as the employee, have a HELP or SFSS liability the value of the reportable employer superannuation contribution listed on your payment summary will be taken into consideration by the Australian Taxation Office when calculating your liability. Human Resources Division 14 July 2014