Salary Sacrifice Integrity Measures
There has been an important change to the amount of Superannuation Guarantee (SG) contribution an employer is obligated to make on behalf of an employee who salary sacrifices part of their salary or wage into super. From 1 January 2020, employers are required to base the SG contribution on the employee’s pre-salary sacrifice income; and are prevented from using employee salary sacrifice amounts to reduce their minimum SG contribution.
Impact to you
If you are an employee earning $450 or more (before tax) in a calendar month, your employer must make an SG contribution of 9.5% of your salary and wages into super on your behalf.
Previously, if an employee elects to enter into an effective salary sacrifice agreement, the employer could, at their discretion, either:
- reduce the SG obligations by the employee elected salary sacrificed amount; or
- base the SG obligations on the employee’s post salary sacrifice income.
Going forward, salary sacrificed amounts cannot be used to reduce an employer’s SG obligations, regardless of how much and employee elects to sacrifice. The benefits of this change are illustrated in the example below.
- In 2019, Bob is earning $100,000 p.a. (before tax and employer SG contributions). He elects to salary sacrifice $5,000 in that year. His employer calculates an SG contribution based on $95,000 ($100,000 less $5,000) and makes a contribution of $9,025 into super on his behalf.
- In 2020, Bob is still earning $100,000 p.a. (before tax and employer SG contributions). He has maintained the $5,000 salary sacrifice arrangement. His employer can no longer reduce the SG contribution by the sacrificed amount. His employer calculates a SG contribution based on $100,000 and makes a contribution of $9,500 into a super on his behalf. This is an additional $475 into his super even though his salary and sacrificed amount remain unchanged.
If you are currently implementing a salary sacrificing strategy, check that your employer is providing you with your legally entitled SG contribution. Some employers may have to increase their SG contributions amounts for their employees as result of this change.
The government has indicated that smaller ‘non-major’ lenders will be favoured to boost competition.
So, will this scheme be effective? Experts are split.
There will certainly be cases where the absence of an LMI premium is the difference needed for a purchase to be viable. However, limiting the scheme to 10,000 borrowers will reduce its effectiveness, bearing in mind that 8,000 first home buyers took out mortgage in March 2019 alone. Some industry experts also claim that the low maximum values in some markets further restricts borrowers options too much.
Overall though, it would seem that any sort of ‘leg-up’ for first home buyers in an overheated property market can’t be a bad thing.
If you or a family member are in the market for your first home, speak to our mortgage expert here at BCV for more information.