Employers are required to make superannuation guarantee payments into their employee’s nominated superannuation fund each quarter.  The current superannuation guarantee amount is 9.5% of the employee’s annual salary up to a maximum amount of $25,000 per annum.  As an aside, this percentage amount is scheduled to increase over the coming years until it reaches a maximum amount of 12.0% from 1 July 2025.  None of this is new news and a conundrum faced by many high-income earners is how to prevent their employers paying more than $25,000 into their superannuation funds.

Why?  Because when they pay more than $25,000 into superannuation, they become subject to Division 293 tax and all it’s associated costs and paperwork.  So, from a tax planning perspective what can we do to help manage this situation?

Well, one way is through the application of a little known or discussed area of the tax law referred to as the Maximum Contribution Base.

The Maximum Contribution Base is an amount set by the Australian Taxation Office (‘ATO’) and indexed annually.  It is used to determine the maximum amount your employer contributes to your superannuation fund each quarter.

The key thing to remember here, is employers are legally required to contribute 9.5% of your salary to your nominated superannuation fund up to $25,000.  Contributions after this point are in excess of their obligations and not legally required.

The Maximum Contribution Base is a quarterly amount which your employer can use a substitute income for the 9.5% superannuation contribution they are required to make.  For the 2020 financial year, the quarterly maximum contribution base amount is $55,270 (superannuation guarantee on this amount is $5,250.65).  For employers to apply this amount, it should be as simple as a setting in their payroll software and the rest is done automatically for them.  No supporting documentation is required.

It is no accident that if you add these amounts up the total contributions come to less than $25,000.  This has been done to ensure the cap amount is not inadvertently breached and the associated penalties arising.

For some it may be a little late in the financial year to completely remove Division 293 from applying, but still worth having the discussion with your payroll team to see what they can do to accommodate your needs and this part of the legislation.

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