Q. I recently started working part-time for my husband who is a sole trader. Does he need to pay my compulsory 9.5% superannuation contribution? Can he also make non-concessional payments into my superannuation? He plans to contribute the maximum concessional $35,000 into his superannuation this financial year, but can he add more to mine, and if so what is the maximum he can contribute?
A. Provided that your husband doesn’t derive more than 50% of his business income from his personal skills, labour or expertise, there is nothing stopping you being genuinely employed by your husband in his business. Your husband would be obligated to meet the legal requirements to employ you under the Fair Work Act 2009 which covers the obligations for employers.
If he does derive more than 50% of his business income from his personal skills, labour or expertise, the income may be considered Personal Services Income (PSI) and as such, there may be restrictions on what he is able to claim for tax deductibility purposes in employing you. Please speak to your accountant to confirm whether you are impacted by this.
If the business income does not count as PSI, he should be eligible to claim a tax deduction for the salary income that is paid to you for the work you do. He should ensure he retains good records evidencing your job description, the type of work you are doing, your remuneration and hours worked. No different to any other employee.
You will need to be registered with the ATO by completing a Pay as you go (PAYG) Withholding Tax Declaration. When he pays you income, the net after tax amount should be paid to your bank account. He will be obligated to withhold the appropriate amount of tax and submit this to the tax office on at least a quarterly basis or more regularly depending on the amount of income.
He will need to register as an employer with Work Cover and establish Workers Compensation insurance. The premium for Workers Compensation is set by WorkCover based on your occupation and income. Your husband is free to choose any Insurance Provider registered with WorkCover.
He will be obligated to pay you the 9.5% Superannuation Guarantee (SG) Contribution as required by the SG rules.
Employer contributions and Personal Contributions made to a Superannuation fund (where the contributor is eligible to claim a tax deduction) count against the Concessional Contribution Cap. If you are 49 or older at 30 June 2016, the Concessional Contribution Cap for the 2016-17 tax year is $35,000. If you are younger, the cap is $30,000. Please note the Government announced changes to the cap to take effect from 1 July 2017 reducing this cap to $25,000.
Presuming you qualify by age, he can contribute up to $35,000 to your Superannuation as an employer and not exceed the concessional contribution cap. Likewise if he qualifies based on age as a sole trader and earns at least 90% of his income as a self-employed person, he can contribute to his super and be eligible to claim up to $35,000 within the concessional contribution cap as a personal deductible contribution .
Non-concessional Superannuation contributions are personal after tax contributions. As a spouse, he is able to make after tax contributions to your Superannuation. The current limit on Non-Concessional contributions is $180,000 a year or $540,000 every 3 years (if under age 65).
Note the government has proposed to replace the Non-Concessional cap with a lifetime cap of $500,000. If the legislation is passed, the proposed changes will take effect from 3 May 2016 and will include all Non-Concessional contributions made into Superannuation from 1 July 2007. Contributions received from 1 July 2007 and made before 3 May 2016 will not result in an excess to this cap.
Please check with your accountant to ensure your husband’s income is non PSI and the tax deductibility of superannuation contributions before embarking on this strategy.