Super Guarantee – What Happens When You Get It Wrong

The ATO receives around 20,000 reports each year from people who believe their employer has either not paid or underpaid compulsory superannuation guarantee (SG). In 2015-16 the ATO investigated 21,000 cases raising $670 million in SG and penalties.

The ATO’s own risk assessments suggest that between 11% and 20% of employers could be non-compliant with their SG obligations and that non-compliance is “endemic, especially in small businesses and industries where a large number of cash transactions and contracting arrangements occur.”

Under the superannuation guarantee legislation, every Australian employer has an obligation to pay 9.5% Superannuation Guarantee Levy for their employees unless the employee falls within a specific exemption. SG is calculated on Ordinary Times Earnings – which is salary and wages including things like commissions, shift loadings and allowances, but not overtime payments.

Employers that fail to make their superannuation guarantee payments on time need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

The SGC is particularly painful for employers because it is comprised of:
• The employee’s superannuation guarantee shortfall amount – so, all of the superannuation guarantee owing
• Interest of 10% per annum, and
• An administration fee of $20 for each employee with a shortfall per quarter.

Unlike normal superannuation guarantee contributions, SGC amounts are not deductible, even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date.

And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings. An employee’s salary and wages may be higher than their ordinary time earnings particularly if you have workers who are paid for overtime.

Under the quarterly superannuation guarantee, the interest component will be calculated on an employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the superannuation guarantee charge would be payable.

Directors are personally liable for unpaid SG. Where attempts have failed to recover superannuation guarantee from the employer, the directors of a company automatically become personally liable for a penalty equal to the unpaid amount. Directors who receive penalty notices need to take action to deal with this – speaking with a legal adviser or accountant is a good starting point.

Update to Superannuation Reforms

 

Making sense of the super reforms

When enacted, the reforms will represent the single biggest change to superannuation since its inception. While there has been a softening of the original Budget announcements, there are still some very big changes coming your way.

Accumulators: Under 65s
The reforms likely to impact on you are:

Reduction in non-concessional contribution caps
If you are close to retirement age and looking to build your super balance, this change is incredibly important. From 1 July 2017, the annual non-concessional contributions cap will be reduced to $100,000 (from the current $180,000).

This means that if you are approaching retirement age, you have until 30 June 2017 to use the current caps and contribute up to $540,000 this financial year. You can do this using the ‘bring forward’ rule. This rule allows you to bring forward up to three years worth of non-concessional contributions in one year (and then make no or limited contributions for the next two years until you reach your three year cap). The advantage of using the bring forward rule now is that your three years worth of contributions utilise the current caps. If you contribute more than $180,000 this financial year but not the full $540,000, you still trigger the bring forward rule but any further contributions from 1 July 2017 are subject to the new $100,000 cap. That is, instead of your cap being $540,000 across three years, it might be $460,000 or $380,000. And, if you wait until after 1 July 2017 to trigger the bring forward rule, you will only be able to contribute up to $300,000.

If you want to make in-specie contributions – that is, contributions to super that are not cash such as listed shares, etc., then you should look at whether the cap reduction affects your ability to do this.

People with Large Super Balances & High Income Earners

The Government thinks that you are not using superannuation for its intended purpose – to fund retirement. As a result, the reforms introduce a whole series of measures that pare back the tax advantages for people with large super balances:

Non-concessional contributions capped at $1.6 million
Once your super balance has reached $1.6m, from 1 July 2017 you will no longer be able to make non-concessional contributions to super. So, you have until then to maximise your contributions (see Reduction in non-concessional contribution caps). Going forward, your super balance will be assessed at 30 June each year.

Concessional contributions cap reduced
From 1 July 2017, the annual concessional contribution cap will be reduced to $25,000 for everyone (currently $30,000 for those aged under 50 and $35,000 for those aged 50 and over).

30% tax on super extended to more taxpayers
High income earners with incomes of $300,000 or more pay 30% tax on contributions they make. From 1 July 2017, this threshold will reduce to $250,000.

Retirees and those Transitioning to Retirement

The reforms likely to impact on you are:

Tax concessions limited to pension balances up to $1.6 million
The reforms introduce a $1.6m ‘transfer cap’ on the amount you can hold in a superannuation pension. This means that if you are in pension phase, the balance of your pension needs to be no more than $1.6m. If not, from 1 July 2017 the Tax Commissioner will direct your fund to reduce your retirement phase interests back to $1.6m and you will be subject to an excess transfer balance tax. Your overall super balance can be more than $1.6m but only $1.6m can be transferred into a tax-free pension. Keeping the excess balance in super may still be worthwhile because of the low 15% tax rate.

If your spouse has a low superannuation balance, it might be worth thinking about how you can maximise your returns as a couple.

Earnings on fund income no longer tax-free
From 1 July 2017, the income from assets supporting transition to retirement income streams will no longer be exempt from tax but included in the fund’s assessable income. For example, if your super fund earns interest from a term deposit, that interest is currently tax-free in a transition to retirement pension. From 1 July, that interest will be included in the fund’s assessable income.

Still Going: Over 65 and Still Working

Currently, if you are 65 or over, your superannuation fund can only accept contributions from you if you work at least 40 hours in a 30 consecutive day period in the financial year. The original Budget announcements abolished this work test. Unfortunately, this reform is not progressing and the work test will remain.

Wages & Self-Employed

There is good news if you are partially self-employed and partially a wage earner. Currently, to claim a tax deduction for your super contributions you need to earn less than 10% of your income from salary or wages. From 1 July 2017, the 10% rule will be abolished.

This means that salary and wage earners will be able to contribute to super and claim a tax deduction for their personal contributions. The caveat here is that these contributions together with employer contributions must remain within the reduced $25,000 concessional cap.

People with Low Super Balances and Broken Employment

There is a lot in the reforms for people who have not had the opportunity to build their super balances. The reforms likely to impact on you are:

‘Catch up’ super contributions
Normally, annual caps limit what you can contribute to superannuation. The reforms allow people with broken work patterns to ‘catch up’ their concessional super contributions. From 1 July 2018, people with super balances below $500,000 will be able to rollover their unused concessional caps for up to 5 years. Unused cap amounts can be carried forward from the 2018-19 financial year; which means the first opportunity to use these new rules will be 2019-20.

Tax offset for low income earners
A new tax offset will be available for people earning less than $37,000. The offset refunds any tax paid on super contributions.

Tax offset for topping up your spouse’s super
Currently, if your spouse earns less than $10,800, you can claim a tax offset of up to $540 if you make super contributions on their behalf. This offset is being extended to spouses who earn up to $40,000.

 

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
 

 

The SuperStream Deadline is Fast Approaching!

Small businesses with employees must be SuperStream compliant by 30th June 2016. With just 3 months before this deadline, the ATO have announced that to date, more than 60% of small businesses are already SuperStream compliant.

This means that if you aren’t already compliant, it’s important that you take steps now to become SuperStream compliant by the deadline.

SuperStream is the standardisation of how employers make superannuation payments on behalf of their employees. Under SuperStream, superannuation payments for your employees must be made electronically, in a standard format.

There are a variety of ways you can make compliant payments:

  • If you are using payroll software, your software provider will provide details on how to make SuperStream compliant payments using their software, so make sure your software is up to date.
  • Your default superannuation fund provider can act as a clearing house for your superannuation payments. Typically that will allow you to make one payment to your superannuation fund provider and they will distribute the money to other funds on behalf of your employees.
  • Use the ATO Clearing House. The ATO provides a free clearing house service for small business (under 19 employees or under $2 million turnover).  You can provide the ATO with the details of the employee payments you need to make via their online portal, do a bank transfer for the total amount, and the ATO will distribute the funds to the appropriate superannuation funds on your behalf.

There is some basic information you will need from your employees to set them up in any of these systems. You will need their Tax File Number, details of their superannuation fund and their member number, as well as the funds Unique Super Identifier number (USI) or fund ABN.

An employer checklist is available on the ATO website that provides more information on becoming SuperStream compliant.

If you have any questions about Superstream, or how to become compliant, please contact our office for further advice.