Loss of Superannuation - Zhang v Golden Eagle International Trading Pty Ltd
In Zhang v Golden Eagle International Trading Pty Ltd and Ors <2006> NSWCA 25, loss of superannuation was calculated at 11% of the net loss of earnings.
This is effectively a short cut to calculating loss of superannuation in personal injury cases because superannuation is 9% of an employee's gross earnings but superannuation contributions by the employer concessionally taxed at 15%.
The complexity in calculating loss of superannuation arises because superannuation is calculated on gross earnings and loss of earnings is calculated on a net basis. Plaintiff's will however be in different marginal tax bands and their residual earnings will also be subject to a different tax rate
So how accurate is this method and how does it affect your client, are you better or worse off using this method?
It depends on the level of their income.
Gross | Net | 11% of Net | 9% of Gross less tax | Difference $ | Difference % | Net Super as % of Net Earnings |
$ 100 | $ 100 | $ 11.00 | $ 7.65 | $ 3.35 | 44% | 7.65% |
$ 200 | $ 200 | $ 22.00 | $ 15.30 | $ 6.70 | 44% | 7.65% |
$ 300 | $ 300 | $ 33.00 | $ 22.95 | $ 10.05 | 44% | 7.65% |
$ 400 | $ 399 | $ 43.84 | $ 30.60 | $ 13.24 | 43% | 7.68% |
$ 500 | $ 473 | $ 51.98 | $ 38.25 | $ 13.73 | 36% | 8.09% |
$ 600 | $ 552 | $ 60.73 | $ 45.90 | $ 14.83 | 32% | 8.31% |
$ 700 | $ 632 | $ 69.47 | $ 53.55 | $ 15.92 | 30% | 8.48% |
$ 800 | $ 698 | $ 76.76 | $ 61.20 | $ 15.56 | 25% | 8.77% |
$ 900 | $ 762 | $ 83.85 | $ 68.85 | $ 15.00 | 22% | 9.03% |
$ 1,000 | $ 827 | $ 90.95 | $ 76.50 | $ 14.45 | 19% | 9.25% |
$ 1,100 | $ 891 | $ 98.04 | $ 84.15 | $ 13.89 | 17% | 9.44% |
$ 1,200 | $ 956 | $ 105.14 | $ 91.80 | $ 13.34 | 15% | 9.60% |
$ 1,300 | $ 1,021 | $ 112.26 | $ 99.45 | $ 12.81 | 13% | 9.74% |
$ 1,400 | $ 1,087 | $ 119.52 | $ 107.10 | $ 12.42 | 12% | 9.86% |
$ 1,500 | $ 1,153 | $ 126.78 | $ 114.75 | $ 12.03 | 10% | 9.96% |
$ 1,600 | $ 1,216 | $ 133.74 | $ 122.40 | $ 11.34 | 9% | 10.07% |
$ 1,700 | $ 1,277 | $ 140.50 | $ 130.05 | $ 10.45 | 8% | 10.18% |
$ 1,800 | $ 1,339 | $ 147.27 | $ 137.70 | $ 9.57 | 7% | 10.29% |
$ 1,900 | $ 1,400 | $ 154.03 | $ 145.35 | $ 8.68 | 6% | 10.38% |
$ 2,000 | $ 1,462 | $ 160.80 | $ 153.00 | $ 7.80 | 5% | 10.47% |
$ 2,100 | $ 1,523 | $ 167.56 | $ 160.65 | $ 6.91 | 4% | 10.55% |
Since 2006, when the decision of Zhang was handed down, there has been substantial reductions in individual tax rates and the average rate of tax for the average employee has reduced from 25% to 20%.
The above table shows that the Zhang method (11% of net loss of earnings) overstates the plaintiff's loss of earnings from superannuation. The next question is whether the overstatement is material and the costs involved in calculating loss of superannuation on the basis of gross earnings less tax is less than the level of overstatement.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. All content relates to the current financial year only. Future changes to tax laws, thresholds or administrative requirements may affect the accuracy or relevance of this information, so you should always confirm that the guidance remains current. While every effort has been made to ensure accuracy at the time of publication, Dolman Bateman accepts no responsibility or liability for any loss or damage arising from reliance on this information. You should seek professional advice tailored to your circumstances before making any financial or tax decision.
