House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon Wayne Swan MP)

Chapter 3 Late payment offset for superannuation guarantee contributions

Outline of chapter

3.1 Schedule 3 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992) to vary the period within which an employer can make a contribution to an employee's superannuation fund after the due date for a quarter, and still be able to use the late payment offset (offset). The calculation of the general interest charge (GIC) on an unpaid amount of the superannuation guarantee (SG) charge where the offset is used is also amended.

Context of amendments

3.2 The SGAA 1992 prescribes a minimum level of superannuation contribution that an employer is required to make on behalf of an eligible employee for a quarter, or else pay an SG charge. The prescribed minimum level of contribution is currently 9 per cent of the employee's ordinary time earnings. To avoid the SG charge, the employer is required to pay the prescribed contribution for the quarter to the employee's superannuation fund by the due date. The due date for a quarter is 28 days after the end of the quarter.

3.3 An employer who does not pay the required amount of superannuation contribution by the due date is liable to pay the SG charge to the Australian Taxation Office (ATO) by the date the SG charge is due to be paid (SG charge payable date). The SG charge includes the contribution shortfall amount, a nominal interest component and an administration fee.

3.4 The offset under section 23A of the SGAA 1992 allows an employer who makes a contribution into an employee's fund after the due date for a quarter, to elect to use the contribution to offset against part of their SG charge liability with respect to the employee for the quarter. Prior to these amendments, the employer could make the contribution at any time after the due date and still be eligible to use the offset. That is, there was no specified time limit as to when the employer was required to make the contribution by, although they were required to elect to use the offset within four years of the SG charge payable date.

3.5 Amending the SGAA 1992 to tighten the period within which an employer can make a contribution and still use the offset will encourage employers to make the contribution closer to the original due date.

3.6 An employer is liable to pay the GIC on an unpaid amount of the SG charge. The GIC effectively accrues on the individual employee's shortfall component of the unpaid SG charge amount, from the SG charge payable date to the date the SG charge and the GIC are both fully paid. Prior to these amendments, where an employer makes a late contribution into an employee's fund and elects to use the offset, the GIC would be calculated on the full shortfall component of the unpaid SG charge amount from the SG charge payable date to the date the Commissioner of Taxation (Commissioner) receives the election. This is despite a contribution being made earlier into the employee's fund for the relevant quarter.

3.7 Amending the calculation of the GIC to take account of the offset reflects the fact that the employer has earlier made a contribution for the benefit of the employee for the relevant quarter.

Summary of new law

3.8 Schedule 3 to this Bill amends the SGAA 1992 with respect to when an employer can make a contribution to an employee's fund after the due date for a quarter, and still be able to use the offset. An employer is eligible to use the offset to reduce their SG charge liability, where:

•

the employer has made a contribution for a quarter into an employee's fund after the due date for the quarter;

•

the contribution in respect of the employee is made before the employer's original assessment for the SG charge for the quarter (original SG assessment date);

•

the employer has given an election, in the approved form, to the Commissioner to use the offset in respect of the employee to reduce their SG charge liability for the quarter; and

•

the election is made within four years after the original SG assessment date for the quarter.

3.9 Schedule 3 also amends the SGAA 1992 in relation to the calculation of the GIC on an unpaid amount of the SG charge where an employer elects to use the offset. The offset takes effect from the original SG assessment date. From the original SG assessment date, the GIC accrues on the remaining shortfall component of the unpaid SG charge amount after the offset has been applied.

Comparison of key features of new law and current law

Detailed explanation of new law

Eligibility to use the offset

3.10 The offset can be used by an employer to reduce their SG charge liability for a quarter for an employee, where all the following conditions exist:

•

the employer makes a contribution into the employee's superannuation fund after the due date for the quarter [ Schedule 3, item 1, subparagraph 23A(1 )( a )( i )];

•

the contribution in respect of the employee is made before the employer's original SG assessment date for the quarter [ Schedule 3, item 1, subparagraph 23A(1 )( a )( ii )];

•

the employer elects, in the approved form, to use the contribution as an offset against their SG charge for the quarter for the employee; and

•

the election is made within four years after the employer's original SG assessment date for the quarter [ Schedule 3, item 2 ].

3.11 An employer's original SG assessment date for a quarter is the date when either of the following first occurs:

•

the Commissioner receives an SG statement from the employer for the quarter and the employer has not previously lodged an SG statement for that quarter and the Commissioner has not assessed an SG charge for the employer for that quarter; or

•

a default assessment is raised on the employer for the quarter.

Example 3.1

Catherine is required to make a $1,000 contribution for the September 2009 quarter on behalf of Jay. Catherine fails to make the contribution by the due date of 28 October 2009, but makes a late contribution into Jay's superannuation fund on 1 December 2009. Catherine is assessed on 31 January 2010 with an SG charge liability for the September 2009 quarter for Jay. Catherine is eligible to use the late contribution made to Jay's fund to offset against her unpaid SG charge liability for Jay for the September 2009 quarter. If Catherine wishes to use the offset she must give her election in the approved form to the Commissioner by 31 January 2014.

Example 3.2

Jeremy does not make super contributions for Phil, Peter and Michael for the quarter ended 30 September 2009. He pays a late contribution for all three on 15 December 2009. On 11 January 2010 Jeremy lodges an SG statement with the Commissioner including his liability for only Phil and Peter. In that statement, he also elects a late payment offset for Phil and Peter.

On 27 June 2010 Jeremy realises that he did not include details for Michael in the SG statement or elect the offset for him and lodges both an amended SG statement and an offset election for Michael. Jeremy will be entitled to claim the offset for Michael as it has been received within four years of the original SG assessment date (ie, within four years of 11 January 2010).

3.12 Where an employer makes a contribution to an employee's fund after the due date for a quarter but is ineligible to use the offset because the contribution is not made before the original SG assessment date for the quarter, then the employer may be able to apply that contribution to a future quarter for the employee for the purposes of the SGAA 1992. This is in accordance with subsection 23(7) of the SGAA 1992. However, the contribution can only be applied to a future quarter if the contribution is made not more than 12 months before the beginning of that quarter and the individual is still an employee of the employer in that future quarter.

Example 3.3

Kim is required to make a $500 contribution for the September 2009 quarter on behalf of Jean. Kim fails to make the contribution by the due date of 28 October 2009. Kim is assessed with an SG charge liability on 1 November 2009 for the September 2009 quarter for Jean. Kim makes a late contribution on 1 December 2009 into Jean's fund. Kim is not able to use the contribution to offset against her unpaid SG charge liability for the September 2009 quarter. This is because the contribution was not made before the original SG assessment date for the September 2009 quarter (ie, the contribution was not made before 1 November 2009). However, Kim may apply the contribution to a future quarter for Jean if the future quarter does not end later than 1 December 2010 and Jean is still employed by Kim in that future quarter.

Date of effect of the offset

3.13 Where an employer is eligible to use the offset for a quarter for an employee, and does elect to use the offset, then the offset takes effect on the employer's original SG assessment date for the quarter. [ Schedule 3, item 3 ]

3.14 The offset takes effect to reduce the employer's SG charge liability for the quarter in respect of the relevant employee. The SG charge liability is reduced by first using the contribution to offset against the nominal interest component of the SG charge, before any remainder of the contribution is used to offset against the shortfall amount of the SG charge. This is in accordance with subsection 23A(4) of the SGAA 1992.

3.15 Having the date of effect of the offset as the employer's original SG assessment date should encourage employers who have a shortfall for a quarter to lodge their SG statement in a timely manner and to also elect to use the offset in a timely manner, so that the offset can take effect to reduce their SG charge liability.

3.16 The date of effect of the offset is also relevant for calculating the GIC on an SG charge amount (refer to paragraph 3.19).

Example 3.4

Following on from Example 3.1, Catherine's SG charge amount for the September 2009 quarter for Jay at the original SG assessment date (31 January 2010) is $1,070. This is made up of the shortfall amount of $1,000, the nominal interest component of $50 and the administration fee of $20. Catherine gives her election to use the offset in respect of Jay to the Commissioner on 1 February 2010. On 31 January 2010, the late contribution made by Catherine into Jay's fund is first offset against the nominal interest component before the remainder of the contribution is offset against the shortfall amount.

General interest charge on an unpaid superannuation guarantee charge

3.17 Section 49 of the SGAA 1992 sets out how the GIC on an unpaid SG charge is calculated. The GIC does not accrue on the nominal interest or the administration components of the SG charge, in accordance with subsection 49(2) of the SGAA 1992. The GIC is intended to encourage employers to pay an unpaid amount of the SG charge by the time it is due to be paid (ie, by the SG charge payable date). The SG charge payable date is set out under sections 36 and 46 of the SGAA 1992.

3.18 The GIC accrues from the SG charge payable date to when both the SG charge and the GIC have been fully paid. This is in accordance with subsection 49(3) of the SGAA 1992. With the GIC accruing on any shortfall component of the unpaid SG charge amount employers have the incentive to pay the unpaid amount in a timely manner.

3.19 Prior to these amendments, where an employer elects to use the offset under section 23A of the SGAA 1992, the GIC would accrue on the full shortfall component of the unpaid SG charge amount from the SG charge payable date to the date the Commissioner receives the election. Then from the date the Commissioner receives the election, the GIC would accrue on the remaining shortfall component of the unpaid SG charge amount (after the offset has been applied) to the time when both the SG charge and the GIC are fully paid.

3.20 Under these amendments, where an employer elects to use the offset under section 23A, the GIC is calculated on the remaining shortfall component of the unpaid SG charge amount (after the offset has been applied) [ Schedule 3, item 4 ]. The offset in respect of an employee takes effect from the employer's original SG assessment date for the quarter [ Schedule 3, item 3 ].

Example 3.5

Following on from Example 3.4, Catherine is liable to pay GIC on the remaining shortfall component of the unpaid SG charge amount after the offset has been applied, from the SG charge payable date for the September 2009 quarter to when the SG charge and the GIC are both fully paid.

The offset takes effect on Catherine's original SG assessment date of 31 January 2010. The remaining shortfall component of the unpaid SG charge amount is $50 after the offset has been applied. This amount is arrived by applying the contribution ($1,000) against the nominal interest component ($50) before the remainder of the contribution ($950) is applied against the shortfall amount ($1,000). The GIC accrues on the shortfall amount of the remaining unpaid SG charge ($50). The administration fee ($20) is still payable but does not attract GIC.

The GIC will accrue on $50 from the SG charge payable date of 31 January 2010 to when both the SG charge and the GIC have been fully paid by Catherine.

Application and transitional provisions

3.21 These amendments commence from the date this Bill receives Royal Assent.

3.22 These amendments apply to a valid election made by an employer to use the offset on or after the commencement of this Bill [ Schedule 3, item 5 ]. An election by an employer is considered to be valid where it is made in accordance with section 23A of the SGAA 1992.

3.23 Schedule 3 to this Bill does not contain any transitional provision.