salary_sacrifice

Since the recent increase in taxes many companies have sought advice on the use of salary sacrifice for employees earning over $60,000. In planning consider the following factors:

Contributions by way of salary sacrifice are taxed under the Superannuation Scheme Contribution Withholding Tax (SSCWT) provisions which currently has a rate of 33% so long as they go into a registered superannuation scheme .

There is new legislation designed to ensure no employers contributions are removed from such superannuation schemes early. If they are, there will be a 5% withdrawal tax imposed.

If the contributions are not deemed salary, but a benefit, then the company will be faced with paying Fringe Benefit Tax regardless of whether it goes into an flexible or locked in retirement plan. The current rate is 64% - this of course is a tax deductible expense making the net cost to the employer just on $110 ($164 less $54) per $100 per contribution.

If however it is regarded as a salary sacrifice then the situation described above (SSCWT) applies.

A critical question the employee has to consider is his (her?) cashflow position. Do they need the amount of salary sacrificed for their day to day living? Or can they afford to have their money tied up in a locked in super scheme for 10 to 20 years? If they want flexibility and access then a locked in scheme may not be so appealing.

Thus the only way for the employee to pay no FBT is for salary sacrifice contributions to go into a registered superannuation scheme. It will not be possible to pay less FBT if the contributions are treated as a benefit - there is only one rate on this level of income.

An explanation of the IRD booklet terminology. Cash contributions are those which are normally paid as cash or an alternative to cash. Non-cash contributions are benefits received in kind - cars, medical insurance, superannuation etc - over and above the agreed salary and cannot be taken as cash.

The new KiwiSaver scheme which started 1 July 2007, will be exempt from SSCWT, but capped at a rate which is the lesser of the employee's contribution or 4% of their gross(before tax) salary or wages. IRD have published guidelines for the SSCWT exemption.

We can provide an appropriate product, including KiwiSaver options, that will fulfill the needs of an employee wanting to utilize salary sacrifice.

Before designing and proposing any of the above schemes for your company we need to know what risks we are covering and we may need some data on your employees.

See our Disclosure Statement

If interested, please complete and submit the form below:

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