Ask Ban Tacs Question
BACKGROUND FACTS
- My son (“BF”) is a senior litigation lawyer at an insurance company (“CO”)
- The CO pays BF a bonus each year based on services provided.
- The CO pays the bonus to BF following the end of the taxation year.
- See chart below:
| Taxation Year | Bonus Payment | Bonus Payment Date | Bonus Sacrifice Notification Date to Employee |
|---|---|---|---|
| 2022-2023 | $13,356.54 | 1/10/23 | N/A |
| 2023-2024 | $16,496.70 | 1/10/24 | N/A |
| 2024-2025 | $20,000.00 (est) | 1/10/25 | To be determined by Bantacs, if applicable. |
| 2025 -2026 | $25,000.00 (est) | 1/10/26 | To be determined by Bantacs, if applicable. |
| 2026-2027 | $30,000.00 (est) | 1/10/27 | To be determined by Bantacs, if applicable. |
QUESTIONS
- On what date(s) does BF notify CO that he wants his annual bonus (ie. 2024/2025; 2025/2026 and 2026-2027) sacrificed to his respective superannuation fund (“FUND”)
- If an agreement is required to effect the bonus sacrifice to BF’s Fund, please provide copy of sample agreement.
- If the bonus payment is determined following the end of the taxation year, how should the agreement be worded to reflect this fact.
Answer
BF can only salary sacrifice income that is earned after he notifies his employer that he wants to salary sacrifice. In the case of a bonus the notice needs to be given before the bonus “accrues”. Looking at the figures you have provided, if I understand them correctly.
2022-2023 received a bonus of $13,356.54 for work performed in the 2022-2023 year but not paid until the 2023-2024 year so taxable in that year. The notification on 1-10-23 is not effective because the income is earned before the notification is given.
If by chance the notification on 1-10-2023 was open ended, date wise, then some of the bonus that relates to work done in the 2023-2024 financial year could be effectively sacrificed into super but if each notification was specific to the bonus earned in the previous year then the notification is not effective. On that basis the 2023-2024 year has the same problems as the 2022-2023 financial year.
2024-2025 year. Do it now! Even then it is a problem because most of it has been accruing before the notice is given.
For 2025-2026 BF needs to be making the election on or before 1st July, 2025 to be absolutely safe
Same for 2026-2027 year notify 1st July 2026 and so on.
The notification can even be verbal but it is advisable that it is made in writing.
The next problem is the $30,000 p.a. cap on concessional contributions. This cap includes contributions made by the employer under the superannuation guarantee. So, depending on BF’s salary there is probably little room left to make salary sacrificed superannuation contributions. There is one exception to this cap, if BF’s superannuation balance, at the end of the previous year is below $500,000 and he has not used up all his concessional caps in the previous 5 years. He can salary sacrifice to catch up these unused caps. This information is available through his mygov account or his tax agent’s portal.
As only part of the bonus can be paid into superannuation as a concessional contribution and the only tax advantage in putting in non concessional contributions is that the earnings are in a low tax environment. I expect that BF is only going to want to contribute up to his $30,000 cap. It should not be difficult to work out how much his employer is likely to contribute to superannuation under the super guarantee. Deduct that from $30,000 and advise his employer at the start of the year his bonus accrues in, to contribute $x of his bonus to superannuation. Considering the size of his bonus there seems no need to know the total bonus at the time of the agreement/notification.
Note there is nothing stopping BF from salary sacrificing his future wages, instead and living off his bonus. It will all come out in the wash tax wise.
Please note this answer is limited by the information you have provided and should not be relied upon without further professional advice on your particular circumstances.
