Sacrifice on super exploited

David Uren
The Australian
February 03, 2014
EMPLOYERS are using salary sacrifices made by their staff to foot the bill for their legal obligation to pay the 9.25 per cent compulsory superannuation contribution, says a hard-hitting budget submission calling for an overhaul of the tax treatment of super.
The Institute of Chartered Accountants of Australia submission highlights a series of anomalies in the superannuation laws, including tax rorts in self-managed superannuation funds; the tax-free treatment of lump-sum payments; and the unfairness of the Coalition government's abolition of low-income superannuation contribution tax refunds.
Millions of super fund members make extra contributions to their retirement savings by sacrificing part of their salary. However, the ICAA says this reduces the amount their employers are required to pay under the government guaranteed 9.25 per cent contribution.
"Under current legislation, employers who offer employees salary sacrifice arrangements to increase their superannuation contributions are able to use their employee's salary sacrificed amounts to satisfy their own obligations to pay 9.25 per cent superannuation for those employees," the submission says.
"This discourages employees from making additional contributions to increase their retirement savings, because by doing so they may be forgoing their entitlement to prima facie 9.25 per cent employee super payments.
"While many employers will pay the 9.25 per cent superannuation guarantee regardless, some will take advantage of the legislation for their own gain and the detriment of their employees."
The institute says that, in any case, the 9.25 per cent guarantee payment is calculated on the salary after the salary sacrifice deduction.
It notes that there is no legal requirement on employers about when they must pay salary-sacrifice contributions, whereas contributions under the guarantee must be made quarterly.
It is also concerned about the position of people who are largely self-employed, who are unable to claim a tax deduction for their own contributions if they get more than 10 per cent of their income from any one employer.
The institute says everyone should be able to claim a deduction for personal super contributions up to a cap.
While this would be expensive, the institute canvasses several areas where the current system could be tightened.
It has raised concerns about the tax-free status of lump-sum payments, suggesting they are inconsistent with the objective of providing a long-lasting and equitable funding of retirement that reduces the call on the Age Pension.
In calling for an inquiry into super benefit payments, the ICAA says "such a review should consider lump-sum versus income-stream benefits".
It says while the idea of letting tax-free pensions be paid out of super funds to people "genuinely transitioning from work to retirement" was sound, the design of the rules allowed them to become "a tax minimisation vehicle by individuals who are not genuinely transitioning to retirement".