Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 10 - Applying superannuation guarantee to back payments of wages
Outline of chapter
10.1 Schedule 7 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to clarify that mandatory employer contributions under the superannuation guarantee arrangements are payable on wages or salary paid in a quarter following the termination of an employment relationship.
Context of amendments
10.2 When calculating an individual shortfall under section 19 of the Superannuation Guarantee (Administration) Act 1992 , there must be salary or wages paid by an employer to an employee. Therefore, in order for there to be a shortfall, and a liability to the superannuation guarantee charge, there must be an employer/employee relationship.
10.3 It is unclear under section 19 of the Superannuation Guarantee (Administration) Act 1992 whether 'employee' includes former employee. If a former employee is not treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 , there cannot be a superannuation guarantee shortfall, and therefore, no superannuation guarantee charge liability. The result being that even though a payment would have formed part of the former employee's notional earnings base had it been paid in the quarter in which it was derived, if the payment is not made until a subsequent quarter, when the employment relationship had ceased, no superannuation guarantee obligation arises.
10.4 The Australian Taxation Office's (ATO) view of the law is that there is a superannuation guarantee obligation for employers that make payments of salary or wages to former employees. However, amendments are required to put the issue beyond doubt.
Summary of new law
10.5 The amendments to the Superannuation Guarantee (Administration) Act 1992 clarify that salary or wages paid to former employees give rise to a superannuation guarantee obligation. This ensures employees do not lose superannuation entitlements as a result of being underpaid during their employment.
10.6 Former employees and former employers are deemed to be employees and employers (respectively), in those sections that deal with; the calculation of superannuation guarantee shortfalls, the reduction of the superannuation guarantee charge percentage by employers, and the distribution of any superannuation guarantee charge by the ATO.
10.7 The deduction provisions for superannuation contributions have been amended to ensure that employers are entitled to a deduction for compulsory superannuation contributions made for former employees under the Superannuation Guarantee (Administration) Act 1992 , and for contributions made for 'superannuation guarantee employees' (as defined in section 12 of the Superannuation Guarantee (Administration) Act 1992 ).
| New law | Current law |
|---|---|
| Employers have a superannuation guarantee obligation in respect of salary or wages paid to a former employee in a quarter following the termination of the employment relationship. | It is unclear whether employers have a superannuation guarantee obligation in respect of salary or wages paid to a former employee in a quarter following the termination of the employment relationship. |
Detailed explanation of new law
10.8 These amendments insert section 15B of the Superannuation Guarantee (Administration) Act 1992 , which ensures that Part 3 of that Act applies to former employees and former employers. [Schedule 7, item 17, section 15B]
10.9 Part 3 raises the individual superannuation guarantee shortfall, which in turn raises the superannuation guarantee charge. Part 3 also allows employers to reduce their superannuation guarantee charge percentage, and therefore avoid the superannuation guarantee charge, by contributing to an employee's superannuation fund or retirement savings account by the superannuation guarantee due date.
10.10 These amendments insert subsection 63A(1A) of the Superannuation Guarantee (Administration) Act 1992 , which ensures that Part 8 of that Act applies to former employees and former employers. Part 8 explains how the ATO is to distribute superannuation guarantee charge amounts (received from employers) amongst benefiting employees. [Schedule 7, item 18, subsection 63A(1A)]
10.11 Amendments to subsection 82AAC(1) of the Income Tax Assessment Act 1936 (ITAA 1936) clarify that a deduction is allowed for contributions made for all superannuation guarantee employees. These amendments also ensure employers are entitled to a deduction for compulsory superannuation contributions made for former employees under the Superannuation Guarantee (Administration) Act 1992 , to the extent that the contribution reduces the employer's superannuation guarantee charge percentage. [Schedule 7, item 1, subsection 82AAC(1)]
10.12 Subsection 82AAF(1) of the ITAA 1936 has been amended to clarify that a deduction is allowed for deposits made for all superannuation guarantee employees under the Small Superannuation Accounts Act 1995 . These amendments also ensure employers are entitled to a deduction for deposits made for former employees under the Small Superannuation Accounts Act 1995 . The deduction for deposits for former employees is only allowable to the extent that the deposit reduces the employer's superannuation guarantee charge percentage. [Schedule 7, item 8, subsection 82AAF(1)]
10.13 Subsections 82AAR(1), (2) and (4) of the ITAA 1936 have been amended to deny a deduction for contributions made to former employees or superannuation guarantee employees, except as stated in Subdivision AA of the ITAA 1936. [Schedule 7, items 12 and 13, subsections 82AAR(1), (2) and (4)]
10.14 Other references to 'employee' in Subdivision AA of the ITAA 1936 have been changed to 'person', to ensure the related provisions apply to former employees and superannuation guarantee employees. [Schedule 7, items 2 to 7 and 9 to 11, subsections 82AAC(2) and (2A), paragraphs 82AAC(2A)(a) and (b), paragraph 82AAD(1)(a), section 82AADA, subsections 82AAF(2) and 82AAQ(1), paragraph 82AAQ(2)(a)]
10.15 Similarly, references to 'employee' in section 26-80 of the Income Tax Assessment Act 1997 have been changed to 'person', to ensure the related provisions apply to former employees and superannuation guarantee employees. [Schedule 7, items 14 to 16, paragraphs 26-80(2)(b), 26-80(4)(b), 26-80(5)(b) and 26-80(5)(c)]
Application and transitional provisions
10.16 These amendments apply to payments made on or after the first day of the first full quarter after Royal Assent. [Schedule 7, item 20]
10.17 These amendments are not to be taken to affect by implication the interpretation of a provision amended by this Schedule at a time before the commencement of this Schedule. [Schedule 7, item 19]
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