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How to manage your superannuation liabilities

Practices often give little attention to the amounts being deducted from GMS and PMS monies and this can bring nasty surprises, says accountant Ian Tongue

Practices often give little attention to the amounts being deducted from GMS and PMS monies and this can bring nasty surprises, says accountant Ian Tongue

Managing the practice's exposure to superannuation liabilities is not an exact science, but taking notice of what is being paid means there is less risk of getting caught out with a large bill.

Understanding the process

The monthly statements specify whether PMS or GMS have deductions from the practice income in relation to employees, added years and employers superannuation contributions for all partners.

This is also where deductions are made for salaried doctors.

Monthly deductions are made based on an overall level of estimated practice superannuable profit which is allocated to partners in accordance with their profit sharing ratios.

On an annual basis, the PCT/LHB should ask each practice to estimate the practice superannuable profit for the next 12 months and confirm the partnership profit allocation.

A certificate of pensionable earnings is prepared for all GP principals, usually around Jan/Feb of the following year.

It is at this point that any variation between actual superannuable profit and the estimated superannuation used for the purposes of calculating the deductions is taken into account with either an additional payment or refund, usually on the March statement.

It is important that the certificates are submitted in time for the payment to be processed prior to the end of the tax year to ensure the GP receives tax relief at the earliest opportunity.

What goes wrong?

• The estimated superannuable profit submitted to the PCT/LHB is inaccurate

• Profit shares do not reflect ultimate allocation of superannuable profit - for example first allocations of profit

• GP's subject to the earnings cap (for periods up to 31.3.08) are not taken into account

• Changes applied during the year are not identified by the practice - for example a new salaried GP

• Superannuable earnings outside the practice are not taken into account

Preparing the annual certificates

The GP pension certificates are complex and have been changing each year in response to various problem areas.

The pension certificate for the year ended 31st March 2008 has recently been released, and thankfully there have been few changes this year.

As the certificates are prepared using the practice accounts in conjunction with a GP's tax return, it is recommended that an experienced accountant prepares them.

Retiring partners

A retiring partner can leave a practice with superannuation liabilities which may not become payable for over 12 months.

For example, if a practice had a 30th June 2008 financial year end and a partner retired on this date, the superannuation certificate for this period (2008/2009) would not be submitted until Jan/Feb 2010.

Since it is the practice that is technically responsible for any superannuation shortfalls, it is extremely important that this process is managed effectively.

Existing partners may want to restrict or freeze payment of a retiring partner's current account until all liabilities are known.

Alternatives are an agreement with the GP to settle any shortfall payments and a favoured approach of the retiring GP agreeing with the PCT/LHB direct to settle any subsequent liabilities.

Many PCT's and LHB's are allowing retired GP's to settle liabilities directly.

A practice with a retiring GP may also want to consider making a superannuation prepayment prior to retirement as the GP may not have any earnings in the following year other than their pension which could result in the tax relief on the superannuation shortfall being lost.

Changes to the pension scheme

From the 1st April 2008 there have been changes to the old pension scheme and the introduction of a new scheme.

From the practice's point of view there are been two key changes which will affect the amount of monthly contributions and the magnitude of any catch up payments made via the superannuation certificates.

They are:

• Employee contribution rates now range from 5% to 8.5%, up from a flat 6%

• The earnings cap for GP's who joined the scheme after on or after 1st June 1989 has been removed

The result of the above changes is that most practices should have experienced increased superannuation deductions from their monthly income from April 2008.

Managing the practice's exposure to superannuation liabilities is not an exact science.

This is due to the many variables but placing adequate focus on the process reduces the risk of getting caught out which in these difficult economic times is vital for all practices.

Ian Tongue is a partner at Sandison Easson and Co, a specialist medical chartered accountant

How to manage your superannuation liabilities

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