Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon. John Dawkins, M.P.)Chapter 8 - Superannuation guarantee charge
Notional Earnings Base
Summary of proposed amendments: The proposed amendments will address cases where an employer's requisite superannuation contribution under an industrial award in place prior to 21 August 1991 is based on the earnings of a standard employee. In such cases, the employee's "notional earnings base" will be the earnings of the standard employee on which that contribution is based. (This amendment will accommodate flat dollar award contributions which are linked to the earnings of a standard employee.)
The proposed amendments will also apply to superannuation contributions made under a federal, state or territory law in place prior to 21 August 1991, where those contributions are also based on the earnings of a standard employee.
Date of Effect: 1 July 1992
Section 13 (and section 14) of the Act set out the meaning of "notional earnings base". Essentially, for an employee to have an earnings base other than ordinary time earnings, the requisite employer contribution currently must be determined under an award, arrangement or superannuation scheme and must be based on the earnings of that employee.
Explanation of proposed amendments
Subsection 13(1) of the Act will be amended so that contributions made under a federal, state or territory law in place prior to 21 August 1991 will have an earnings base comparable to that which would have applied had the contributions been made under an award, agreement or superannuation scheme in place prior to that date. [Subclause 78(a): Paragraph 13(1)(ab)]
Subsection 13(2) will then be amended, and subsection 13(5) added, to remove the requirement that a notional earnings base be related only to the earnings of the employee in question. An earnings base under awards, or laws, in place prior to 21 August 1991 will also be acceptable if related to the earnings of a member of a class of employees (the 'standard employee'), even if the employee in question was not in that class. [Subclause 78(b) and 78(d): Subsections 13(2) and 13(5)]
For example, an award which required a contribution for all drivers of an amount equal to 4% of the earnings of a Grade 1 driver, would have an earnings base for all drivers (including those who weren't Grade 1 drivers).
A new section 25A will apply where:
- •
- an industrial award in place prior to 21 August 1991 required a flat dollar superannuation contribution to be made for an employee; [Paragraph 25A(1)(a)] and
- •
- that flat dollar contribution was required to be increased automatically as the earnings of a member of a class of employees (the 'standard employee') increased. [Paragraph 25A(1)(b)]
In such cases, the notional earnings base for the particular employee will be the earnings of the standard employee. [Clause 80: Subsections 25A(2), (3) and (4)]
For example, if an award required a contribution of $15 per week, indexed by reference to movements in the wage of a Class B administrative officer, the notional earnings base would be the earnings of the Class B administrative officer.
The amendment also provides for flat dollar superannuation contributions to be converted to a percentage, for the purposes of paragraph 23(2)(b), when calculating the reduction in the charge percentage under subsection 23(2). The percentage will equal the fiat dollar contribution divided by the notional earnings base. [Clause 80: Paragraph 25A(2)(b)]
Consequential amendments will be made to subsections 13(4) and 23(9) to include a reference to a federal, state and territory law. The consequential amendments are necessary because of new paragraph 13(1)(ab) which will allow contributions made under a federal, state or territory law in place prior to 21 August 1991 to have an earnings base comparable to that which would have applied had the contributions been made under an award, agreement or superannuation scheme in place prior to that date. [Subclause 78(c) and 79].
Excluded Salary or Wages
The proposed amendment will exclude payments of salary or wages from the calculation of the superannuation guarantee charge, where those payments are prescribed in the Regulations. This amendment, together with a proposed Regulation, will ensure that certain payments of salary or wages which are alternatives to Social Security payments will be excluded from the calculation of the charge.
Date of Effect: 1 July 1992
Explanation of proposed amendments
The proposed amendment will exclude from calculation of the superannuation guarantee charge any payment which is prescribed in the Regulations.
A payment prescribed in the Regulations will include certain payments of salary or wages, paid under a Commonwealth Government Employment Programme, which are alternatives to Social Security payments. An example is the salary or wages paid under Community Development Employment Programme schemes (funded through the Aboriginal and Torres Strait Islander Commission).
The amendment will ensure that employers do not have to provide superannuation support on payments which are alternatives to Social Security payments. [Subclause 87(a)]
The $450 exemption threshold
The proposed amendment will clarify the test for determining whether an employee has exceeded the $450 monthly exemption threshold. It will expressly state that the exemption operates according to the amount of salary or wages paid to the employee in the month;
Date of Effect: 1 July 1992
Subsection 27(2) provides that if an employee receives less than $450 in salary or wages in respect of a month, the salary and wages are not taken into account in calculating any superannuation guarantee charge.
This subsection has confused many taxpayers. In particular, they are confused about whether the provision operates on an "accruals" basis (i.e. salary or wages earned for the month but not necessarily paid then) or whether it operates on a "paid" basis (i.e. salary or wages actually paid in a month).
The provision was intended to operate on a paid basis. Therefore, employers would be able to judge whether an employee had exceeded the $450 threshold by looking at the
actual salary or wages paid to that employee in the month. They would not have to calculate how much of the salary and wages paid to an employee was for work done in the month.
Explanation of proposed amendments
The proposed amendment will make it clear that, if less than $450 of salary or wages is paid to an employee in a month, it is not to be taken into account in calculating any superannuation guarantee charge. [Subclause 87(b)]
Deemed complying funds
Summary of proposed amendments
The proposed amendment will extend the time for an employer to obtain a statement from a fund so that benefit certificates in relation to it are deemed to relate to a complying superannuation scheme. The extended time will be 30 days after the date of introduction of this amendment.
Date of effect: Date of introduction of the amendments
Existing paragraph 24(1)(a) gives an employer 30 days from the start of the contribution period to obtain a written statement from the trustee of a superannuation scheme. This statement must state that the superannuation scheme has been operating in accordance with the Occupational Superannuation Standards Act 1987 from the start of the contribution period.
If an employer hasn't obtained this statement and the scheme proves not to be a complying superannuation scheme, then the employer could be liable for the superannuation guarantee Charge.
The contribution period for the 1992 - 1993 year starts on 1 July 1992. However, because the Act did not receive royal assent until 21 August 1992, many employers were unaware of these provisions within the 30 days. Therefore, they did not seek to obtain the relevant statement.
Explanation of proposed amendments
To ensure that employers are not disadvantaged in the first contribution period in 1992 - 1993, paragraph 24(1)(a) will be amended to enable an employer to satisfy the paragraph if the employer obtains the relevant statement before the end of 30 days after the date of introduction of the amendment. [Clause 86]
Calculating superannuation guarantee shortfalls
The proposed amendment will ensure that the amount of the employee's salary or wages used in calculating the shortfall cannot exceed the maximum contribution base.
Date of Effect: Date of introduction of the amendment
The Act incorporates a "maximum' contribution base" to limit the level of superannuation support an employer must provide for employees on high incomes. This maximum is $40,000 for the half yearly contribution periods in the 1992-93 year and $20,000 (indexed) for the quarterly contribution periods in later years.
The effect is to limit the maximum superannuation contributions necessary to avoid the charge, to the charge percentage (e.g.3% or 4%) times the maximum contribution base.
However, an employer may not make those contributions for an employee earning more than the maximum contribution base. Under sections 18 or 19 of the Act as currently drafted, the charge would be calculated on the basis of the employees actual salary and wages, not on the maximum contribution base.
Explanation of proposed amendment
The proposes amendment will amend sections 18 and 19 so that the amount of the employee's salary and wages used in calculating the charge cannot exceed the maximum contribution base. [Clauses 83 and 84]
Indexation
The proposed amendment will correct an error in the indexation calculation in section 15 which refers to '1992-93' instead of '1993-94'.
Date of effect: Date of introduction of the amendments
Subsection 15(2) provides that the maximum contribution base for a contribution period in the 1993-94 year is calculated as:
($40.000 * indexation factor for the 1992-93 year) / 2
The indexation factor for the 1992-93 year is the Adult Weekly Ordinary Times Earnings ("AWOTE") amount for the March '92 quarter divided by the AWOTE amount for the March '91 quarter (section 9).
The result is incorrect. The indexation factor for subsection 15(2) should be the March '93 quarter AWOTE figure divided by the March '92 quarter figure (i.e. the indexation factor for the 1993-94 year).
Explanation of proposed amendments
The proposed amendment will replace "indexation factor for the 1992-93 year" in the subsection 15(2) equation with "indexation factor for the 1993-94 year". [Clause 82]
Charge percentage in defined benefit superannuation schemes
The proposed amendment will exclude, from the calculation of the reduced charge percentage for defined benefit superannuation schemes, any period when the employee was on leave without pay.
Date of Effect: Date of introduction of the amendment
Section 22 calculates the reduced superannuation guarantee charge percentage if an employer provides superannuation support via a defined benefit superannuation scheme. The reduction is based on the notional employer contribution rate specified on a benefit certificate. This is adjusted to reflect any period in the contribution period when the employee was employed but was not a member of a superannuation scheme or was not covered by the benefit certificate.
The adjustment produces an inappropriate result where an employee is on leave without pay. During this period, the employee remains an employee for superannuation guarantee purposes but is usually not entitled to superannuation support from the employer. However, under the Act, if no superannuation support is provided during a contribution period in respect of an employee, the employer would not be allowed a reduction in the charge percentage for that period (even though the employee is on leave without pay).
Explanation of proposed amendments
To overcome this problem, the proposed amendment to section 22 will ensure that any period of time when an employee is on leave without pay will not be taken into account for superannuation guarantee purposes. [Clause 85]
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