Employer Superannuation Contributions

Employers are required to contribute two amounts for PSS and CSS members: Employer Productivity Superannuation Contributions (EPSC) and Employer Superannuation Contributions. There have been several queries regarding Employer Superannuation Contributions and the impact on employers and members.

Both the PSS and CSS are defined benefit schemes, with the benefit being determined by the scheme rules according to the member's period of membership, age, salary or final average salary, contribution rate (PSS members only), method of exit, and benefit option chosen. The benefits include a component funded by the employer.

The starting point for determining an agency's PSS and CSS Employer Superannuation Contribution rates is the standard rates for these schemes as calculated in the most recent PSS and CSS Long Term Cost Report. These rates are then adjusted for each agency based upon the superannuation salary experience.

Employer Superannuation Contributions are reviewed on an annual basis. The Department of Finance and Administration advises employers in December and February of the new rates to apply from the next financial year.

Irrespective of the Employer Superannuation Contribution rates, the member will receive his/her benefit according to the scheme rules.

Employer Productivity Superannuation Contributions (EPSC)

New super tax legislation that affects all super funds and their members comes into effect from 1 July 2007.
In the PSS and CSS, EPSCs will continue to be taxed at 15% when they are received by the PSS or CSS.
These contributions are classed as concessional contributions for tax purposes.

Cap on concessional contributions

From 1 July 2007, members will have a cap on concessional contributions across all of their super funds.
Salary sacrifice contributions are treated in the same way as EPSC for tax purposes. Although members are unable to salary sacrifice into the PSS or CSS, if they make salary sacrifice contributions to other super funds they will be included in the concessional contributions cap.

The cap on concessional contributions is:

• $50,000 per year, or
• For members aged 50 or over, a transitional limit of $100,000 per year for five years (financial year 2007/08 to 2011/12).

Contributions above this cap will be taxed at the top marginal rate and will also count towards the non-concessional contributions* cap.

Example:

• If an employer contributes $10,000 productivity contributions to a member’s CSS or PSS account and, in the same financial year, the member salary sacrifices $50,000 to another super account the member will exceed the cap (unless they are subject to the transitional arrangements i.e. are 50 years old or more)

• The total concessional contributions in the financial year are $60,000 and so the member will exceed the cap by $10,000.

• This means $10,000 will be taxed at the top marginal tax rate and will also count towards the member’s non-concessional cap.

Exceeding the cap on concessional contributions

If a member exceeds the cap, they will be taxed on excess contributions.

The ATO will send them a Tax Assessment and a “release form” which allows them to withdraw money from their super fund to pay the extra tax.

The member will need to send this release form to their other superannuation fund(s) or make a personal payment to ATO as CSS/PSS are unable to do this for them.

*Non-concessional contributions

In the PSS and CSS, all member contributions are classed as non-concessional contributions for tax purposes.

From 1 July 2007, members will have a cap on concessional contributions across all of their super funds.
The cap on non-concessional contributions is:

• $150,000 per year, or
• $450,000 over three years for members under 65. For example, $300,000 in year one, $100,000 in year two and $50,000 in year three.

Contributions up to the cap are tax-free. Any contributions over this cap will be taxed at
the top marginal tax rate. Amounts transferred into the PSS or CSS from other super funds do not count towards the cap.

Important points to note:

• Employer Superannuation Contributions are payable in respect of members for the entire period of their membership, including after a member has reached their Maximum Benefit Limit (PSS) or elected to cease contributions after forty years (CSS members).
• Finance monitors employer contributions made by agencies. The Australian National Audit Office reviews contributions paid as part of their annual financial statements audit.
• Small over and underpayments should generally be adjusted in subsequent payments.
• We do not recommend that information on the amount of Employer Superannuation Contributions be included on individual members' pay slips as this amount does not impact on a member's benefit and creates additional queries from members. However, if you include this information, members need to understand that this will not equate to the employer benefit for the financial year shown on their information statements or reported for surcharge purposes.
• Similarly, if you intend to include the cost of the Employer Superannuation Contribution as part of a member's salary package, the member needs to understand that the dollar figure shown does not equate to the amount they will receive from the scheme. Also, it may be necessary to indicate that this figure may vary if the agency employer rate is changed.
• Finance may seek payment to compensate for the adverse effect of extraordinary circumstances such as excessive superannuation salary increases granted prior to retirement.

For any queries on Employer Superannuation Contribution rates contact Finance:

• Katherine Cheng 02 6215 2008 or email katherine.cheng@finance.gov.au

For any queries on Employer Superannuation Contribution payments contact:

• Employer Help on 6272 9993 or email employer.help@comsuper.gov.au