Directors receive superannuation reprieve

Directors who serve on multiple boards are generally forced to pay higher superannuation taxes.

For individuals with one job only who earn more than the maximum superannuation contribution base ($54,030 per quarter in 2018-2019, or $216,120) the maximum mandatory superannuation contribution is 9.5% times that base ($20,531 for 2018-2019).

Employers are required to contribute, irrespective of an employee (and this includes company directors) having more than one job. This means that if an individual is working for three different employers, each employer has an obligation to contribute 9.5% to the employee’s superannuation fund for the employer to avoid the superannuation guarantee charge.

This anachronism means that directors who receive substantial fees from being on multiple boards may not only exceed the $20,531 from compulsory superannuation, but may also exceed the concessional superannuation cap of $25,000.

Breaching the cap otherwise results in these individuals being liable to pay excess contributions tax (31.5%, on top of the 15% levied on all contributions), as well as a shortfall interest charge.

We wrote about this issue in 2014 (see HERE) when the government first allowed individuals the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap and any associated earnings, with these earnings to be taxed at the individual’s marginal tax rate.

After some vacillating (presumably while it filled its taxation coffers from well-paid directors), the government has acted to remedy the situation. In the May budget, the government announced that individuals with multiple employers who earn over $263,157 can nominate their wages from a particular employer(s) are not subject to the superannuation guarantee.

This welcome change will be effective from 1 July 2018.

In case you were wondering, $263,157 has not been plucked from the air, but is $25,000/9.5%.

As most directors receive a set fee including superannuation, the new rule will mean higher cash and zero superannuation for some of the boards on which they serve.

Directors should be pleased. It will be much easier in an administrative sense, and many aspiring directors believed they could do this anyway.


© Guerdon Associates 2024
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