Q. I have been working at the one company for 17 years and I am about to retire at 71. I have been salary sacrificing into super for at least the last decade. For the last year, I’ve been working just 3 days per week. When my 13 weeks Long Service Leave (LSL) was due years ago I took it as a payout and paid the tax at the time. Since then I have accrued another 9 weeks of LSL. I would like the company to pay that as a salary sacrifice straight into my super before I leave so I pay contributions tax of 15% tax as opposed to Income tax of 34%. I am well below the Employer Concessional Contribution cap of $35k for the year. Can I do this or is it a problem?
A. This question appears simple however the answer to this question is complex.
A salary sacrifice arrangement is a financial arrangement between an employer and an employee. The employee agrees to receive a lower amount of pay in return for the employer providing them with benefits of a similar value to the reduction in pay. Superannuation is one of the most common examples of a Salary Sacrifice arrangement.
In order for a Salary Sacrifice arrangement to be effective and to comply with the law, there is a range of conditions that must be met. The arrangement should be entered into before you perform the work that earns the income. There should be an agreement (contract) between you and your employer, usually in writing, but may be a verbal one. There should be no access to the sacrificed salary. The sacrificed salary must be permanently forgone for the period of the arrangement.
Where the employee has already done the work or accrued the benefit, it is too late to put a salary sacrifice arrangement in place. In your case, you would need to have had an arrangement in place with your employer that enabled you to Salary Sacrifice your Long Service Leave (LSL) into Superannuation prior to accruing the entitlement.
If you take your LSL as a lump sum on retirement, you will not receive 9.5% Superannuation Guarantee (SGC) employer contributions on the LSL lump sum payment. However, if you received the LSL benefit as an income payment, you would be entitled to receive SGC payments and continue to accrue ongoing leave entitlements on the LSL payment as you are continuing employment.
Given you have previously elected to Salary Sacrifice contributions to Superannuation, if you were to take your LSL as an ongoing income payment, you may be able to Salary Sacrifice all your income into Superannuation. This would require the agreement of your Employer that a Salary Sacrifice arrangement was already in place. Note, if you elected to Salary Sacrifice your LSL income entitlement, your Employer is under no obligation to make SGC payments on Salary Sacrificed income.
This would also mean that you could not retire until you had used up all your leave entitlements as you would be a continuing employee to receive the LSL income payment. Note you would also want to stay below the Concessional Contribution Cap.
As you are 71, you satisfy a Superannuation condition of release so you could access a portion of your Superannuation benefits if you needed access to funds to live on over the next 9 weeks.
As I warned, this is not a simple question. Consider whether you are prepared to stay employed longer. Confirm with your employer whether they agree you have elected to Salary Sacrifice future income and are prepared to allow you to Salary Sacrifice this amount. Consider your shorter term income needs and how you would meet day to day living expenses. Get advice in relation to your particular circumstances.