The Government has announced a package of reforms to give the ATO near-real-time visibility over employers' superannuation guarantee (SG) compliance. The package includes measures to:
- require super funds to report contributions received more frequently (at least monthly) to the ATO;
- roll out Single Touch Payroll (STP), with employers that have 20 or more employees transitioning to STP from 1 July 2018, and smaller employers from 1 July 2019 – STP is designed to reduce the regulatory burden on business and transform compliance by aligning payroll functions with regular reporting of taxation and superannuation obligations;
- improve the effectiveness of the ATO's recovery powers, including strengthening director penalty notices and using security bonds for high-risk employers; and
- give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment.
Legislation has also been introduced to amend the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) so that employers will be prevented from using an employee's salary sacrifice contributions to reduce the employer's own minimum SG contributions. This change would apply to working out employers' SG shortfalls for quarters beginning on or after 1 July 2018.
Currently, salary sacrificed superannuation amounts can count towards employer contributions that reduce an employer's charge percentage for SG purposes. This means unscrupulous employers can potentially calculate SG obligations on the (lower) post-salary-sacrifice amounts.
To avoid an SG shortfall, an employer must contribute at least 9.5% of an employee's ordinary time earnings (OTE) base to a complying superannuation fund. If an employer has a shortfall, the amount of the shortfall is calculated by reference to their employee's total salary or wages base.
For the purposes of reducing the employer's SG charge percentage, the Bill proposes to amend the definition of ordinary time earnings (OTE) so that the OTE base specifically includes any contributions that are "sacrificed ordinary time earnings amounts" of the employee for the quarter in respect of the employer. The Bill aims to ensure that contributions under a salary sacrifice arrangement will not be treated as contributions that reduce the employer's SG charge. Rather, the mandatory employer contributions that reduce the SG charge will be calculated on a pre-salary-sacrifice base.
Where sacrificed salary or wages amounts (or sacrificed OTE amounts) are never contributed but instead paid to the employee in a later quarter (eg at the employee's request), they will be disregarded to avoid double counting. The quarterly salary and wages base will also remain subject to the maximum contribution base ($52,760 per quarter for 2017–2018).
Pablo has quarterly OTE of $15,000, which would ordinarily generate an entitlement to $1,425 in SG contributions ($15,000 × 9.5%). He salary sacrifices $1,000 in a quarter, expecting his superannuation contributions to rise to $2,425 for that quarter.
However, his employer uses the sacrificed amount ($1,000) to satisfy part of the employer's SG obligation, and only makes a total contribution of $1,425 (mostly consisting of the employee's $1,000 salary sacrificed amount, and only $425 of employer mandatory contribution).
As a result of the new amendments, Pablo's $1,000 sacrificed contribution would no longer reduce the employer's SG charge. Therefore, the charge percentage would only be reduced by 2.83% ($425 / $15,000 × 100). As the employer is required to contribute 9.5%, it must contribute an additional 6.67% to meet its minimum SG obligations. The total contribution of only $1,425 would mean the employer has a shortfall of approximately $1,000 (6.67% × $15,000).
With sacrificed contributions no longer reducing the charge, Pablo's employer would need to contribute $1,425 (mandatory employer contributions) in addition to the $1,000 employee sacrificed amount, for a total contribution of $2,425, to avoid a shortfall and liability for the SG charge.