Salary Splitting Fraud

The Salary Splitting Fraud is a version of the Superannuation Salary Fraud.

Here the Employer splits an Employee’s salary into two components:

  • Base Salary, plus
  • Performance Salary

The Employer pays “Base Salary” on a monthly basis and pays “Performance Salary” on an Annual basis.

The Employer then only reports “Base Salary” as “Superannuation Salary” to the Trustee of the Members’ Superannuation Fund.

Typically average weekly earnings increase around 1.5%/annum higher than the general inflation rate. So if the general inflation rate is 3% per annum, then average weekly earnings will rise at 4.5% per annum

Base Salary is only increase in line with inflation.

To consider the impact of this fraud consider these two scenarios.

Bill Black and Wendy White are Members of similar final salary Defined Benefit Funds that have a Member’s Benefit Multiple of 7 after 40 years Membership. The Trust Deed and Rules of both Funds contain an Exclusion List that allows the Trustee to exclude “overtime payments” when determining “final salary

Bill Black works for Employer A who pays a standard salary that increases in line with average weekly earning (4.5% per annum). Bill commences Employment at 20 and retires at 60 with a “Final Average Salary” of $145,000. With a Member’s Benefit Multiple of 7 Bill receives a Defined Benefit of $1.01 Million.

Wendy White works for Employer B and at age 40, Employer B starting increasing “Base Salary” in line with inflation and started paying an annual “Performance Salary” to replace the previous 4.5% annual increase. Wendy White’s total annual salary increase at the same rate as Bill Black and the same amounts are reported to the Australian Tax Office.

The Exclusion List in the Trust Deed and Rules only allows the Trustee to deduct “overtime payments” when calculating the Defined Benefit. No Mention is made of “Performance Salary“.

However Employer B only reports “Base Salary” to the Trustee as “Superannuation Salary“.

Instead of acting at all times in the best interests of the Members and Beneficiaries and seeking a Direction and Order from the Supreme Court in the state which the Fund was established to compel the Trustee to report the same amount to the Trustee as is reported to the Australian Taxation Office, the Trustee just claims that there is nothing the Trustee can do other than accept blindly the “salary” information that Employer B Provides to the Trustee.

Wendy White’s total annual salary is the same as Bill Black’s but has been split into two components as shown.

By only reporting “Base Salary” to the Trustee as “Superannuation Salary” Wendy’s Defined Benefit has been reduced to $770,000 or $240,000 less than Bill Black’s.

The Trust Deed and Governing Rules of both Funds were exactly the same.

Bill and Wendy earned exactly the same and the same amounts were reported to the Australian Tax Office.

The only difference is the Trustee of Wendy’s fund failed to act at all times in the best interests of the Member’s and Beneficiaries and instead bluffed Members by saying that there was nothing the Trustee could two when the Employer’s HR Department  started running “two sets of books” and started reporting a lower amount as “salary” to the Trustee compared to the real amount reported to the Australian Tax Office.

So Wendy lost 25% of her superannuation entitlement because her Trustee failed to act in accordance with the law (No doubt because of “incentive” payments from the Employer not to do so and the threat that the Employer would engage another Trustee).

Even if Wendy works harder and increases her “Performance Salary“, this has no impact on her Superannuation Benefit.

This fraud was peddled around by HR Consultants and was implemented by many HR Managers so that they could claim large “performance” bonuses for themselves for “cutting the cost of superannuation“.

Has your Employer implemented the “Salary Splitting Fraud“?. Do you get an annual “performance payment” that is not included in your “Superannuation Salary“?

If so you should become a Member of Australian Guardians.

Australian Guardians – Protecting your wealth when no one else will®


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