Senate

Supplementary Explanatory Memorandum

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

Amendments to the Calculation of Individual Shortfalls

Summary of proposed amendments

The proposed amendments will make the following changes which will affect the calculation of an employer's individual superannuation guarantee shortfall in respect of an employee:

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New tables of charge percentages will be substituted for the existing tables in the Bill. The new tables will specify lower charge percentages in certain years and include two additional years (ie. 2001-2002 and 2002-2003);

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The annual national payroll threshold for an employer will be raised from $500,000 to $1,000,000. The employer's annual national payroll is used to determine the employer's charge percentage, eg. 3% or 4/5% for 1992-93;

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The charge percentage for larger employers (ie. employers with an annual national payroll greater than $1 million) will be lowered from 5% to 4% for the first 6 months of the 1992-93 year. A regulation can be made to increase the 4% to 5% from 1 January 1993. (If this regulation is disallowed, the 4% rate will apply for the whole of the 1992-93 year);

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The contribution period (ie. the period for which superannuation support is measured) for the 1992-93 year will be changed from an annual period to two 6 month periods commencing on 1 July 1992 and 1 January 1993 (as a result of the change above);

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The contribution period for the 1993-94 and subsequent years will be changed from a monthly basis to a quarterly basis.

Explanation of proposed amendments

Level of superannuation support an employer is expected to provide

The level of superannuation support an employer is expected to provide depends on the amount of the employer's "annual national payroll" and the financial year in which the employer is an employer for a full year. An employer's "annual national payroll" for a year is the total amount of salary and wages paid during the year by the employer in Australia and outside Australia in relation to services performed or rendered wholly in Australia .

If the employer was an employer for the whole of the 1991-92 year the "charge percentage", ie. the expected percentage level of superannuation support, is based on the employer's annual national payroll for the year ending on 30 June 1992. Under the proposed amendments the charge percentage will be determined as follows:

An employer will use whatever column applies in the 1992-93 year for all subsequent years irrespective of changes to the employer's annual payroll. For example, if an employer's annual national payroll was $850,000 for the year ended 30 June 1992 and $1,100,000 for the year ended 30 June 1993, the employer's charge percentages for the 1992-93 and 1993-94 years will be 3%.

If an employer was not an employer for the whole of the 1991-92 year, the employer will use the charge percentage in the first column in the above table until such time as the employer is an employer for a full financial year. If, in that first full financial year, the employer's annual national payroll exceeds $1 million, the employer will use the second column in the above table for the year following the full financial year and all subsequent years. Otherwise, the employer will continue to use the first column in the table for all years.

For example, assume an employer commenced as an employer on 1 January 1992 and has annual national payrolls of $600,000, $1,250,000 and $1,500,000 for the 1991-92, 1992-93 and 1993-94 years respectively. The employer's charge percentage will be 3% for the 1992-93 year, but 5% for the 1993-94 year because the employer's annual national payroll for the employer's first full financial year (i.e., the 1992-93 year ) exceeds $1 million.

Charge percentage for 1992-93 year

If an employer was an employer for the whole of the 1991-92 year and has an annual national payroll in excess of $1 million for that year:

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for the period 1 July 1992 to 31 December 1992 the employer's charge percentage will be 4%; and

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for the period 1 January 1993 to 30 June 1993 the employer's charge percentage is expected to be 5%.

The proposed amendment provides that the increase in the charge percentage from 4% to 5% on 1 January 1993 will only occur if:

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within 28 days of the Superannuation Guarantee (Administration) Bill 1992 receiving Royal Assent a regulation is made to increase the rate to 5%; and

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that regulation is not disallowed before the end of the second sitting day (for both Houses of Parliament) after 8 December 1992, or before 31 December 1992, whichever is earlier.

If a regulation is not made or is disallowed in the period set out above the charge percentage for the period 1 January 1993 to 30 June 1993 will be 4%.

Contribution periods

1992-93 year

As two charge percentages may apply in the 1992-93 year (for employer's with annual national payrolls in excess of $1 million), it is necessary to change the contribution period for the 1992-93 year from an annual basis to two 6 monthly periods, the first commencing on 1 July 1992 and the other commencing on 1 January 1993. (Definition of "contribution period" and "half-year" in subclause 6(1) and new clause 18.)

Although the level of superannuation support will be measured on a 6 monthly basis, the calculation of the superannuation guarantee charge will still be annual.

A further amendment will ensure that contributions which are made at any time on or after 1 July 1992 and on or before 14 August 1993 may be taken into account as if they had been made during either of the 6 monthly contribution periods in 1992-93. [New subclause 23(6)]

1993-94 year

Under the existing Bill, an employer's level of superannuation support for the 1993-94 and subsequent years is calculated on a monthly basis (ie, there are monthly contribution periods). Amendments will be made to change this monthly basis to a quarterly basis with each quarter commencing on 1 July, 1 October, 1 January, and 1 April of the 1993-94 and subsequent years. (Definition of "contribution period" and "quarter" in subclause 6(1) and new clause 19.)

Maximum contribution base

Clause 15 of the existing Bill sets out a maximum contribution base. This puts an upper limit on the amount of superannuation support that an employer is expected to provide for the benefit of an employee and is a limit on earnings.

For 1992-93 the limit is $80,000. It is indexed for later years and converted to a monthly amount. It is proposed to make amendments to clause 15 as a consequence of the need to provide for two contribution periods in 1992-93 and the change from a monthly to a quarterly basis for subsequent years.

These amendments will provide that the maximum contribution base for either of the two six monthly periods in 1992-93 is $40,000. For subsequent years the maximum contribution base will be indexed and on a quarterly basis.