House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

General Outline and Financial Impact

Purpose of the Bill

The Superannuation Guarantee (Administration) Bill 1992 and the Superannuation Guarantee Charge Bill 1992 implement the Government's decision, announced in the 1991-92 Budget, to impose a tax on an employer where the employer provides superannuation support below a minimum level. The purpose of the Bills is to encourage employers to provide a minimum level of superannuation support for employees.

Administration

The Bills will be administered by the Commissioner of Taxation.

Commencement date

The Bills apply from 1 July 1992.

Level of employer superannuation support

All employers are potentially liable for the tax. However, the tax will not apply if the employer has provided the minimum level of superannuation support for each employee, or the employer is exempt in respect of a particular employee.

The minimum level of employer support will be expressed as a percentage of the employer's earnings base. The employee's earnings base is:

(a)

the earnings base on which contributions to a superannuation scheme are based (as defined in the formal documents of, or associated with, the scheme) provided that the employer was contributing to the scheme on 20 August 1991 and the earnings base used is no narrower than that used on 20 August 1991; or

(b)

the earnings base on which contributions to the scheme are based provided it is a base that the employer is required to use under an industrial award; or

(c)

a base not less than ordinary time earnings.

An employee's maximum earnings base will be $80,000 for the 1992-93 year. The figure will be indexed annually.

The required percentages for each year are as follows:

Generally, an employer's payroll will be based on the payroll for the financial year ending on 30 June 1992. However, if the employer was not an employer for all of the 1991-92 year the employer's payroll will be assumed to be less than $500,000 until such time as the employer is an employer for a full financial year. In the years following the full financial year, the employer's payroll will be based on the payroll for that full financial year.

Superannuation support must be provided through a complying superannuation fund in order to be counted towards the minimum level of superannuation support. The fund can be either a defined contribution fund or a defined benefit fund. In the case of a defined benefit fund, the employer will be required to obtain an actuarial certificate specifying the level of employer superannuation support implicit in the benefits available to employees in the fund. For all other funds, the employer's level of support will be the proportion that the actual contributions made to the fund is to the employee's earnings base.

Amendments to the Occupational Superannuation Standards Regulations are proposed so that employer superannuation support provided in a complying superannuation fund must vest immediately from 1 July 1992 and be fully preserved from 1 July 1993 if it is to be used in determining the minimum level of employer support. The employer support must also be fully funded or Government guaranteed.

The level of superannuation support will be measured on a financial year basis for the year commencing on 1 July 1992. However, where an employer has provided insufficient superannuation support during that year, the employer will be able to make up any shortfall in contributions by 14 August 1993. For subsequent years, employer support will be measured on a monthly basis. The employer will be expected to provide the minimum level of support within 28 days of the end of the particular month.

Exemptions

An employer will be exempt in respect of the following employees, irrespective of whether the minimum level of superannuation support is provided to these employees:

•

employees who earn less than $250 in a month;

•

employees under 18 years of age who are not working full time;

•

employees in their capacity as members of the Defence Reserve Forces;

•

employees who are aged 65 or over;

•

non-resident employees who are paid solely for work undertaken outside Australia;

•

resident employees who are employed by non-resident employers and are paid solely for work undertaken outside of Australia.

Calculation of the tax

If an employer does not provide the minimum level of superannuation support, a tax will be imposed on the employer. The tax will be equal to the superannuation guarantee shortfall. The superannuation guarantee shortfall will be made up of:

•

the total of the individual superannuation guarantee shortfalls for all employees:

•

an interest component: and

•

an administration component.

An individual superannuation guarantee shortfall for an employee is the amount calculated by applying to the employee's salary and wages the percentage difference between the minimum level superannuation support and the actual employer superannuation support.

The interest component is a proxy for superannuation fund earnings. The rate of interest is based on the rate for underpayments and overpayments of income tax (currently 14.026% per annum). The interest will be calculated from the commencement of the financial year until the time the superannuation guarantee charge is payable.

The purpose of the administration component is to recover costs incurred in administering the tax. The component will consist of a flat amount of $50 plus an amount of $30 for each employee in respect of whom the employer has an individual superannuation guarantee shortfall.

Assessment and payment

Employers will self assess the liability to tax. If an employer is liable, a superannuation guarantee statement is required to be lodged by 14 August, (unless the Commissioner of Taxation grants an extension time), and is to be accompanied by a payment for the amount outstanding. The lodgement of the statement is deemed to be an assessment.

Review of assessments

The procedures for review of assessments will be similar to procedures for other taxation laws.

Penalties

The penalty provisions of the Bill are similar to those which , apply in other taxation laws. For example, penalties apply for late payment, failure to provide statements, false and misleading statements, and for avoidance of tax.

Redistribution

There is a standing appropriation from the Consolidated Revenue Fund which allows for the redistribution of any tax collected.

The amount to be redistributed in respect of an employee is equal to the amount of the superannuation guarantee charge which relates to the particular employee. The administration component as well as certain penalties paid by the employer will not be redistributed.

The redistribution will be to a complying superannuation fund chosen by the employee to whom the redistribution relates. However, if the employee is deceased or is under age 55 and has retired due to illness the redistributed monies may be paid direct to the employee or deceased employee's representative.

Financial Impact

It is estimated that as a result of the Bill employers will remit to the Australian Taxation Office an insignificant amount in 1992-93 and $17m in subsequent years of which about $15m will be redistributed to employees.