House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Housing and Assistant Treasurer, the Hon Michael Sukkar MP)

Chapter 1 - Superannuation - employees with multiple employers

Outline of chapter

1.1 Schedule 1 amends the SGAA 1992 to allow individuals to avoid unintentionally breaching their concessional contributions cap when they receive superannuation contributions from multiple employers. Instead of receiving contributions into superannuation, an employee may apply to the Commissioner to opt out of the SG regime in respect of an employer and negotiate with the employer to receive additional cash or non-cash remuneration.

1.2 The amendments achieve this outcome by allowing certain employees with multiple employers to apply to the Commissioner for an 'employer shortfall exemption certificate', which prevents their employer from having a superannuation guarantee shortfall if they do not make superannuation contributions for a period.

1.3 The amendments provide a framework for the issuing of a certificate, including the conditions which must be satisfied before the Commissioner may issue a certificate.

1.4 All legislative references in this Chapter are to the SGAA 1992 unless otherwise stated.

Context of amendments

1.5 In the 2018-19 Budget, the Government announced that from 1 July 2018, individuals with multiple employers would be able to nominate to opt out of the SG system in respect of their wages from certain employers. The opt-out means that eligible individuals can avoid inadvertently breaching their annual concessional contributions cap as a result of multiple employers making contributions into superannuation on their behalf. The amendments in this Schedule implement this measure by providing a framework for individuals to apply to the Commissioner for an employer shortfall exemption certificate, which prevents their employer from having a SG shortfall if they do not make superannuation contributions for a period.

1.6 The SG rules ensure that employees have a minimum level of superannuation contributions in respect of their employment. The rules achieve this by imposing a tax (the SG charge) on employers who fail to contribute a minimum percentage of their employees' ordinary time earnings into superannuation. Avoiding a liability to this charge provides employers with an incentive to make contributions on behalf of their employees.

1.7 Employers are liable to pay to the Commissioner SG charge equal to their SG shortfall for a quarter. SG shortfall consists of the total of the employer's individual SG shortfalls for each employee, nominal interest component and administration component for the quarter.

1.8 An employer's individual SG shortfall for an employee for a quarter is calculated by reference to a charge percentage and the total salary or wages paid by the employer to the employee for the quarter.

1.9 Contributions that an employer makes in respect of their employees reduce the charge percentage for the employer. This reduces the employer's SG shortfall for a quarter and corresponding liability for SG charge.

1.10 The SG rules include a 'maximum contribution base' beyond which an employer no longer needs to make superannuation contributions for an employee for a quarter to avoid liability for SG charge. This operates as a ceiling, limiting the amount of superannuation support that an employer is required to provide for an employee for a quarter. This is achieved by excluding amounts of salary or wages that exceed the maximum contribution base from the calculation of individual SG shortfall.

1.11 The rules for working out the maximum contribution base for a quarter depend upon the year in which the quarter falls. For a quarter in the 2001-02 financial year, or later years, the maximum contribution base is an amount indexed annually (starting from a base of $27,510 in 2001-02). For a quarter in the 2017-18 financial year or any later year, the maximum contribution base is instead worked out by reference to a charge percentage and the concessional contributions cap if that amount is less than the indexed amount for the quarter. This calculation broadly aims to prevent employer contributions from causing an employee to exceed their annual concessional contributions cap.

1.12 However, the maximum contribution base for an employee applies to each employer. If an employee has multiple employers, each employer must make superannuation contributions on the earnings they pay to the employee up to the maximum contribution base in order to avoid having an SG shortfall. This occurs even where the employee earns less than the maximum contribution base for each of their employers, but their income in total exceeds the maximum contribution base.

1.13 Individuals with multiple employers may inadvertently exceed their annual concessional contributions cap. Concessional contributions generally provide the most favourable superannuation treatment. When a concessional contribution is made by an employer, the employer can claim a deduction for making the contribution, and the contribution is taxed at the concessional rate of 15 per cent by the superannuation entity that receives it.

1.14 Where an individual's contributions (including those made by their employer) exceed their annual concessional contributions cap, the excess is their 'excess concessional contributions' for the financial year. An individual's excess concessional contributions are included in the individual's assessable income for the year and taxed at marginal rates less a 15 per cent tax offset (representing the tax paid in the superannuation fund). They are also subject to a charge based on the shortfall interest charge to cover the resultant late payment of tax.

1.15 Individuals can choose to retain excess concessional contributions in superannuation as a non-concessional contribution or withdraw 85 per cent of the excess concessional contribution.

Summary of new law

1.16 The amendments allow certain individuals with multiple employers to apply to the Commissioner for an employer shortfall exemption certificate. Such certificates prevent an employer from having an SG shortfall in relation to the employee for a quarter.

1.17 The amendments provide a framework for the issuing of a certificate, including the conditions which must be satisfied before the Commissioner may issue a certificate.

Comparison of key features of new law and current law

Detailed explanation of new law

1.18 The Schedule amends the SGAA 1992 to ensure that an employer covered by an 'employer shortfall exemption certificate' issued by the Commissioner will not be liable for SG charge (or face other consequences under the SGAA 1992) if they do not make contributions on behalf of their employee for a quarter covered by a certificate.

1.19 The amendments insert new provisions in the SGAA 1992 which set out when an individual may apply for an employer shortfall exemption certificate, the conditions that must be satisfied before the Commissioner may issue an employer shortfall exemption certificate and the Commissioner's obligations relating to making a decision to issue or refuse to issue a certificate.

Effect of employer shortfall exemption certificate

1.20 An employer's maximum contribution base for an employee for a quarter is nil if the employer is covered by an employer shortfall exemption certificate issued by the Commissioner in relation to the employee for that quarter. [Schedule 1, item 2, section 19AA]

1.21 This means the total salary or wages paid by the employer to the employee for the quarter is taken to be nil when calculating the employer's individual SG shortfall for the employee for the quarter. The effect of this is that the employer will not be liable for SG charge (or face other consequences under the SGAA 1992) if they do not make contributions on behalf of the employee for the quarter.

1.22 An employer shortfall exemption certificate does not prevent an employer from making contributions into superannuation on behalf of the employee. The effect of the certificate is only to remove the consequences of failing to make any contributions for the quarter covered by the certificate. This means an employer may choose to disregard a certificate and continue to make contributions. For example, this may be relevant where an employee and employer do not reach agreement on the terms of an alternative remuneration package for the relevant quarter, or if there has not been enough time for an employer to adjust payroll or other business software to discontinue contributions for the employee.

1.23 Once an employer shortfall exemption certificate has been issued, the Commissioner may not vary or revoke the certificate. [Schedule 1, item 2, subsection 19AB(8)]

1.24 This provides certainty for employers that if a certificate has been issued for a quarter, the employer will not be liable for SG charge (or face other consequences under the SGAA 1992) if they do not make contributions on behalf of the employee for the quarter. This certainty minimises the administrative costs for employers associated with arranging their affairs in respect of the SG and allows the employer to agree to an alternative remuneration package with their employee on the basis of circumstances that cannot later be withdrawn unilaterally to the employer's disadvantage.

1.25 This does not preclude an employee and employer coming to an agreement to recommence superannuation contributions for the employee at any point during the quarter covered by an employer shortfall exemption certificate. For example, this may be relevant where an employee's circumstances change and they no longer expect to exceed their concessional contributions cap.

1.26 However, as a certificate cannot be varied or revoked once issued, there is no legislative mechanism for an employer to be forced back into the SG framework in respect of the employee for the quarter covered by a certificate. This is appropriate as employees on higher incomes (such as those that are likely to breach their concessional contributions cap through employer contributions) are likely to be in a strong bargaining position with their employers, are able to safeguard their own interests and have voluntarily opted out of SG payments.

Conditions for issuing an employer shortfall exemption certificate

1.27 The Commissioner may issue an employer shortfall exemption certificate in relation to a person that has made an application to the Commissioner (in the approved form) and their employer for a quarter if all of the following conditions are satisfied:

•

the Commissioner considers that, disregarding the effect of issuing the certificate, the person is likely to exceed their concessional contributions cap for the financial year that includes the relevant quarter;

•

the Commissioner is satisfied after issuing the certificate, the employee will have at least one employer that would either have an individual SG shortfall in relation to the employee, or have such a shortfall if they did not make any contributions for the benefit of the employee; and

•

the Commissioner considers that it is appropriate to issue the certificate in the circumstances. [Schedule 1, item 2, section 19AB]

Application from employee

1.28 The Commissioner can only issue an employer shortfall exemption certificate at the request of the person who is the employee to be covered by the certificate. [Schedule 1, item 2, subsection 19AB(1)]

1.29 The Commissioner cannot issue an employer shortfall exemption certificate at the request of the individual's employer or on the Commissioner's own initiative.

1.30 The intent is to provide a mechanism for partially opting out of the SG system, initiated by employees with multiple employers who are likely to breach their annual concessional contributions cap. This allows those employees to instead choose to negotiate with their employer to receive additional cash or non-cash remuneration. There is no requirement to evidence that the foregone contributions have actually been substituted for higher wages. This is on the basis that employees with higher incomes (that is, those who are likely to breach their concessional contributions cap through employer contributions) are likely to be in a strong bargaining position with their employers and have voluntarily opted out of SG payments.

Employee must be likely to have excess concessional contributions

1.31 The Commissioner may only issue an employer shortfall exemption certificate if the Commissioner is satisfied that if the certificate is not issued the employee is likely to have excess concessional contributions for the financial year (whether or not issuing the certificate would prevent that result). [Schedule 1, item 2, paragraph 19AB(3)(a)]

1.32 This requirement ensures that employer shortfall exemption certificates target those employees who are likely to inadvertently breach their concessional contributions cap through employer contributions. In reaching a view on this issue, the Commissioner may rely on any information including past tax return data, single touch payroll reporting data and information provided in the employee's application to make this assessment.

1.33 When considering this matter, the Commissioner must disregard the effect of the certificate under consideration, as the certificate will allow an employer to reduce the contributions they make in respect of the employee. It is not necessary for the Commissioner to be satisfied that issuing the particular certificate will prevent the employee having excess concessional contributions for the financial year.

1.34 The Commissioner should still consider the effect of any other employer shortfall exemption certificates the Commissioner has issued or is proposing to issue in relation to the employee for the financial year. [Schedule 1, item 2, subsection 19AB(4)]

Employee must still be receiving contributions from another employer

1.35 The Commissioner must be satisfied that after issuing the employer shortfall exemption certificate, the employee will have at least one employer that would either have an individual SG shortfall in relation to the employee or have such a shortfall if they did not make any contributions for the benefit of the employee. [Schedule 1, item 2, paragraph 19AB(3)(b)]

1.36 The Commissioner may issue multiple certificates in relation to a single employee, each certificate covering a different employer. However, at least one employer must still be required to make contributions for the benefit of the employee in order to avoid liability for SG charge. This ensures that an employee will still receive a minimum level of contributions for the financial year.

1.37 When considering this matter, the Commissioner must have regard to the effect of any other employer shortfall exemption certificates the Commissioner has issued or is proposing to issue in relation to the employee for the financial year. [Schedule 1, item 2, subsection 19AB(5)]

1.38 This is because if a certificate has been issued in relation to another employer of the employee for the same quarter, that employer will not be required to make contributions for the benefit of the employee in order to avoid liability for SG charge.

Appropriate to issue the employer shortfall exemption certificate

1.39 The Commissioner must consider that it is appropriate to issue the employer shortfall exemption certificate in the circumstances. [Schedule 1, item 2, paragraph 19AB(3)(c)]

1.40 In determining whether it is appropriate to issue an employer shortfall exemption certificate, the Commissioner may have regard to the effect that issuing a certificate is expected to have on an individual's concessional contributions for a financial year, as well as any other matter that the Commissioner considers relevant. [Schedule 1, item 2, subsection 19AB(6)]

1.41 These requirements ensure that the Commissioner has specific regard to whether the combination of certificates the applicant has applied for is the most appropriate (having regard to the likely effect on their concessional contributions). It may be appropriate for the Commissioner to deny an application for an employer shortfall exemption certificate where a person has applied for a certificate that would reduce their contributions by a substantially larger amount than is necessary, relative to another possible certificate or where the Commissioner has already issued a certificate for another quarter in the same financial year. The Commissioner would also have regard to any circumstances in which an individual has engaged in behaviour that artificially enables them to apply for a certificate.

Applying for employer shortfall exemption certificates

1.42 A person may make an application to the Commissioner, requesting that the Commissioner issue an employer shortfall exemption certificate in respect of their employer for a quarter in a financial year. An application may only be made in respect of an employer of the person at the time the application is made. That is, an application cannot be made in respect of a prospective employer. [Schedule 1, item 2, paragraph 19AB(2)(b) and subsection 19AB(1)]

1.43 The application must be lodged with the Commissioner in the approved form. [Schedule 1, item 2, paragraph 19AB(2)(a)]

1.44 The Commissioner may rely on subsection 388-50(2) of Schedule 1 to the TAA 1953 to combine in the same approved form more than one application. This allows employees to request, through a single application, separate certificates for each employer and quarter that they are seeking a certificate in relation to. This minimises administrative costs associated with obtaining certificates.

1.45 Requiring the application to be lodged in the approved form allows the Commissioner to seek evidence of things that the Commissioner needs to be satisfied of, before issuing the certificate (refer above).

1.46 The due date for lodging an application is 60 days before the first day of the quarter to which the application relates. [Schedule 1, item 2, paragraph 19AB(2)(c)]

1.47 However, as the application must be lodged in the approved form, the Commissioner has the discretion to defer to due date for lodging the application under section 388-55 of Schedule 1 to the TAA 1953.

1.48 It is expected that for the first quarter of the 2018-19 financial year, the Commissioner will defer the due date for all applications to allow employees time to apply for an exemption following the commencement of these amendments.

Commissioner's decision to issue or refuse to issue an employer shortfall exemption certificate

1.49 The Commissioner must provide written notice advising of a decision to issue an employer shortfall exemption certificate to:

•

the employee that made the application; and

•

the employer that is covered by the certificate.

[Schedule 1, item 2, subsection 19AC(1)]

1.50 Requiring that the Commissioner notify an employer covered by the certificate (rather than leaving it to an employee) provides greater certainty for employers of the authenticity of the certificate.

1.51 If the Commissioner decides to issue an employer shortfall exemption certificate, the Commissioner must specify in the notice the following matters that are covered by the certificate:

•

the employer;

•

the employee; and

•

the quarter.

[Schedule 1, item 2, subsection 19AC(2)]

1.52 Issuing a certificate involves providing it to the employee. The Commissioner may combine one or more certificates covering the same employer and employee, such that a single certificate covers multiple quarters in a financial year (see section 990-5 of Schedule 1 to the TAA 1953).

1.53 Where the Commissioner refuses to issue a certificate, the Commissioner must still notify the employee of the decision, but is not required to notify their employer. [Schedule 1, item 2, subsection 19AC(3)]

1.54 If the Commissioner fails to notify the employee of the Commissioner's decision within 60 days of the lodgement of the application, the Commissioner will be taken to have refused the application. [Schedule 1, item 2, subsection 19AC(4)]

1.55 A person who is dissatisfied with the Commissioner's decision to issue or refuse to issue an employer shortfall exemption certificate may object to the decision in the manner set out in Part IVC of the TAA 1953. This ensures that the standard objection processes that apply for tax administration matters apply to such decisions. [Schedule 1, item 2, subsection 19AB(7)]

1.56 The amendments also make it clear that an employer shortfall exemption certificate is not a legislative instrument. [Schedule 1, item 2, subsection 19AB(9)]

1.57 This provision is included to assist readers and does not change the general character of an employer shortfall exemption certificate (which is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003).

1.58 Similarly, a notice that is provided by the Commissioner to issue or refuse to issue an employer shortfall exemption certificate is not a legislative instrument. No further clarification about this position is required as part of these amendments because this is already provided through the existing exemption in item 18 of the table in Subsection 6(1) of the Legislation (Exemption and other Matters) Regulation 2015.

Consequential amendments

1.59 Schedule 1 inserts the definition of 'employer shortfall exemption certificate' into the list of defined terms in subsection 6(1) and inserts a note to assist readers of the legislation. [Schedule 1, items 1 and 2, subsection 6(1) and note to subsection 19AA(2)]

1.60 Schedule 1 also makes an amendment to ensure that the decisions of the Commissioner to issue or refuse to issue an employer shortfall exemption certificate are exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977. [Schedule 1, item 4, paragraph (gae) of Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977]

1.61 This amendment would align the judicial review processes available for a decision to issue or refuse to issue an employer shortfall exemption certificate with those available for other taxation decisions by the Commissioner. Taxpayers are provided with full review rights under Part IVC of the TAA 1953 which is a well-established and comprehensive review scheme for taxation decisions. Part IVC of the TAA 1953 review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977.

Application provisions

1.62 The amendments apply in relation to quarters starting on or after 1 July 2018. That is, the amendments will allow the Commissioner to issue an employer shortfall exemption certificate covering a quarter starting on or after 1 July 2018 and will alter the maximum contribution base rules for such quarters. [Schedule 1, item 3]

1.63 If the Act commences after 1 July 2018, affected employers and employees will not be disadvantaged, as the measure is voluntary for both parties. An employee may choose to apply for a certificate in relation to their employer. An employer may choose to disregard a certificate and continue to make contributions for their employee (the only consequence of having a certificate is that the employer will not need to make such contributions to avoid liability for SG charge).