For many doctors working in the hospital system for more than one employer and the issue of exceeding the concessional contribution limit ($25,000 for the 2019 financial year) has been frustrating and often costly. However, it now appears that a solution might be close to hand.
The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 currently before Parliament proposes to amend the law to allow individuals to avoid unintentionally breaching their concessional contributions cap (CC cap) when they receive superannuation guarantee (SG) contributions from multiple employers.
Under the current law, an employer will be penalised if they do not contribute 9.5 per cent of the employee’s ordinary time earnings. The amount of superannuation support is capped at the maximum contribution base (MCB) which acts as a limit beyond which an employer no longer needs to make SG contributions. The MCB for the 2018–19 income year is $54,030 of earnings per quarter.
Where an employee has one employer, the maximum SG contributions that would be required to be made for a whole income year — calculated as 9.5 per cent of the MCB — is $20,531.40. This is within the employee’s CC cap of $25,000.
But where the employee has two separate employers, each employer is required to make mandatory SG contributions for the employee otherwise they will be liable for penalties.
For example, let us assume a doctor is an employee at two different hospitals. Let us also assume that the doctor’s OTE for each hospital is more than $216,120 (i.e. $54,030 × 4 quarters). Therefore, each hospital will need to contribute $20,531 ($216,120 x 9.5%) of super on behalf of the doctor. The result is that the doctor now has $16,062.80 in excess of the CC cap of $25,000 and therefore will be subject to excess contributions tax.
Until now, a doctor has not been able to avoid inadvertently breaching their CC cap when they receive SG contributions from multiple employers, and therefore they have been subject to excess contributions tax. The excess concessional contribution is included in their income tax return and taxed at their marginal tax rate.
Proposed measure to avoid cap breaches
Under the proposed measures instead of receiving SG contributions which may cause an employee to exceed their CC cap, they may apply to the Commissioner to ‘opt out’ of the SG regime in respect of an employer and negotiate to receive additional remuneration instead.
This will effectively apply to employees whose employment income exceeds $263,157 (calculated as $25,000 divided by 9.5 per cent).
How will the employee ‘opt out’ of the SG regime?
An employee with multiple employers who seeks to ‘opt out’ of the SG regime will need to apply to the Commissioner for an employer shortfall exemption certificate.
It is important to note that the application for the certificate can only be made by the employee — the Commissioner cannot issue a certificate at the request of an employer. What form the application will take should become clear once the legislation is passed. This is likely to be late August 2018.
Example — a doctor with three employers
Dr Dave is employed by Hospital A on a $200,000 salary, by Hospital B on a $300,000 salary and Hospital C on a $100,000 salary. Super Guarantee of 9.5% is payable in addition to these salaries.
SG contributions would be as follows:
Hospital A — $19,000
Hospital B (based on MCB of $54,030 = $5,132.85 × 4 quarters) — $20,531.40
Hospital C — $9,500
Total concessional contributions = $49,031.40, which exceeds the CC cap of $25,000.
Dr Dave can apply for two certificates and provide them to Hospital B and Hospital C to reduce their MCB to nil.
Hospital A is still required to make SG contributions for Dave’s benefit. If Dave wants to maximise his superannuation contributions he could choose to either:
- arrange with Employer A, Employer B or Employer C to pay an additional contribution of $6,000;
- contribute $6,000 directly and claim a deduction for the personal contribution in his tax return.
We will provide an update on the mechanics of these changes once the bill becomes law.
Two step authentication and cyber security
Given the rise of cyber-crime it is vitally important that you do everything you can to mitigate the risk, be it monetary or identity theft. If you are running your business using a bookkeeping software (as 99% of people do these days) then you have information that could be misused if accessed by the wrong person or entity.
If an unauthorized person can access your software not only will they have access to sensitive information but perhaps also the ability to change bank account details for suppliers and employees – leading to significant financial loss.
There are various ways to reduce this risk including regularly changing passwords as well as making sure spy-ware and anti-virus software is up to date. We strongly recommend you discuss these matters with your IT provider and review your situation regularly.
However, one thing you can do immediately is set up two-step authentication (2FA) to log in to your bookkeeping software account. Two step authentication adds a second level of authentication to a log-in process. Entering a username and password is considered a single-factor authentication. Two factor authentication requires a user have more credentials to log in to an account. Common examples include a downloadable app such as Google Authenticator or simply having a text message with a security number sent to your mobile phone on log in.
The major software providers already have 2FA in place and we highly recommend you implement this for yourself (and your staff) as soon as possible. We have included links below to Xero, and MYOB that may be of assistance.
If you are using a different software then you should contact the provider directly to find out if they offer 2FA as a feature. If not then you should probably consider your options moving forward.
Should you require any assistance with implementation please do not hesitate to contact your Client Relationship Manager at McMasters’.
Financial Planning Health Check
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We believe any financial position can be improved by creating and implementing a clear financial plan and making sure you are doing all that can be done to maximise your financial potential. You can read about our approach to financial planning here: McMasters’ Financial Planning.
Please contact Alix Dower to make an appointment on 9583 6533.