Category: Super

Super guarantee opt-out for employees with multiple employers

By Heaney Business Group

Employees with multiple employers can now opt-out of superannuation guarantee from all but one employer.

Employers are required to pay 9.5% superannuation guarantee for all eligible employees. But what happens if you are an employee with multiple employers? Until recently, these compulsory payments meant some employees risked unintentionally breaching their concessional contributions caps. New laws, however, provide a potential solution.

Legislation that passed Parliament late last month allows an employee to apply to the Commissioner of Taxation for an employer shortfall exemption certificate to opt-out of the SG system for specific employers. This certificate prevents their employer from having a superannuation guarantee shortfall if they do not make superannuation contributions for the period covered by the certificate.

It’s important to note that the exemption certificate does not require the employer to stop paying SG, it merely protects them if they fail to make SG payments. The employer may choose to continue paying SG – either because they could not reach an agreement with the employee on their total remuneration package once SG is removed, or the administration required to exclude an individual employee is too onerous.

The Commissioner will only issue an employer shortfall exemption certificate where:

  • The taxpayer is likely to exceed their concessional contributions cap for the financial year (just because you have multiple employers does not mean you can opt out of SG), and
  • At least one employer is paying SG for the employee.

The Commissioner might deny the certificate if it’s not appropriate, the application would significantly reduce the amount of SG by an amount larger than necessary (for example, opting out of SG from the largest of the multiple employers), or where there is a contrived arrangement to take advantage of the new rules.

The due date for the employer shortfall exemption certificate is 60 days before the first day of the quarter to which the application relates.

Before applying for a certificate, it’s important to understand the impact of opting out of SG. You will need to negotiate your total remuneration package with your employer and the impact of this on your tax position, understand the tax outcomes if you did nothing and exceed your contributions cap, and the impact on your retirement savings over time.

The Super Guarantee timing trap for employers

By Heaney Business Group

How employers are being caught out by the timing of superannuation guarantee payments.

Employers can generally only claim a deduction for superannuation contributions in the income year in which the contribution is made. Super contributions are made when the payments are received by the trustee of a complying superannuation fund.

It’s not uncommon for employers to be caught out by timing problems. Many in the belief that the contribution has been made at the point the payment is made. Rather than when it is credited to the superannuation fund provider’s account. Many forms of electronic transfer, however, are not guaranteed to be automatic or next day. BPay, for example, may take up to 2 days. A delay that is often not factored in.

Clearing Houses

A new practice statement from the ATO highlights the problem created by the use of clearing houses.

There is a specific element of the law that enables payments made to the Government’s Small Business Superannuation Clearing House (SBSCH) to be accepted as contributions when the clearing house receives them, rather than when the trustee of the superannuation fund has received the contribution. The SBSCH is only available to small businesses with 19 or fewer employees, or with an annual aggregated turnover of less than $10 million.

Private clearing houses are treated differently and as such, employers need to allow sufficient time for their superannuation contributions to be received, processed and paid by the clearing house to the superannuation fund before their SG obligation is discharged.

Take the example of an employer who brings forward superannuation contributions before 30 June to be able to claim the tax deduction in that year.  If a private clearing house was used, and time was not allowed for the clearing house to process the payment, and as a result, the payment was not received by the trustees before 30 June, then the deduction cannot be claimed until the next financial year.

Calculating Superannuation Guarantee: The New Rules

By Heaney Business Group

From 1 July 2020, new rules will come into effect to ensure that an employee’s salary sacrifice contributions cannot be used to reduce the amount of superannuation guarantee (SG) paid by the employer.

Under current rules, some employers are paying SG on the salary less any salary sacrificed contributions of the employee. Currently, employers must contribute 9.5% of an employee’s Ordinary Time Earnings (OTE) and they choose whether or not to include the salary sacrificed amounts in OTE.

Under the new rules, the SG contribution is 9.5% of the employee’s ‘ordinary time earnings (OTE) base’. The OTE base will be an employee’s OTE and any amounts sacrificed into superannuation that would have been OTE, but for the salary sacrifice arrangement. Let’s look at an example:

Pablo has quarterly Ordinary Time Earnings of $15,000 which would ordinarily generate an entitlement to $1,425 in SG contributions ($15,000 x 9.5%). He salary sacrifices $1,000 a quarter, expecting his superannuation contributions to rise to $2,425 for that quarter.

However, his employer uses the sacrificed amount ($1,000) to satisfy part of the employer’s mandated SG obligation, and only makes a total contribution of $1,425, mostly consisting of the employee’s $1,000 salary sacrificed amount.

Under the new amendments, Pablo’s $1000 sacrificed contribution will no longer reduce the charge. Therefore, the charge percentage would only be reduced by 2.83% ($425 / $15,000 x 100). As the employer is required to contribute 9.5% of the OTE base, they must contribute an additional 6.67% to meet their minimum SG obligations. The employer has a shortfall of approximately $1,000 (6.67% x $15,000).

As sacrificed contributions no longer reduce the charge Pablo’s employer will need to contribute $1 425 (mandatory employer contributions) in addition to the $1,000 employee sacrificed amount, to avoid a shortfall and liability for the SG charge.

The amendments also ensure that where an employer has not fulfilled their SG obligations and by calculating superannuation guarantee the superannuation guarantee charge is imposed. The shortfall is calculated using the new OTE base.

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Important Changes to Super Insurance and Exit Fees

By Heaney Business Group
Superannuation Fund

As a result of new laws, (1 July 2019) you will longer see superannuation providers diminishing member balances with untoward or unnecessary insurance and exit fees. Plus, accounts that are inactive with low balances will be moved to the ATO to attempt to link the unclaimed superannuation with their owners. These changes do not apply to self-managed superannuation funds or small APRA (Australian Prudential Regulation Authority) funds.

Insurance Within Members Superannuation Fund

Up until the end of the 2018/2019 financial year, superannuation providers had to supply their members with suitable Life and Total and Permanent Disability (TPD) Insurance inside superannuation on an ‘opt out’ basis. That is, the insurance was automatically put in place when you became a member of the fund.

For many people, such as young people with no dependants and those with insurance cover elsewhere, this caused an issue as these default insurance premiums were a key factor in their superannuation balances being eaten away as people simply didn’t realise, they had insurance inside their funds.

As of 1 July 2019, superannuation providers can no longer charge a default insurance fee to any member with an inactive account. An inactive account is deemed to be one that has not had any activity, rollovers or contributions for a continuous period of 16 months. If the member has elected to maintain the insurance this will continue even on inactive accounts. This rule doesn’t apply to active accounts new or existing; therefore default insurance will be applied unless your opt out.

What to Do If This Default Insurance Change Affects You

If this default insurance change affects you, you need to decide if the insurance held in your super fund is needed. If the insurance isn’t required or you have insurance elsewhere, the premiums will reduce the amount in your account. If insurance is needed, insurance cover can often be cheaper through superannuation and your cashflow will not be affected as the premiums come out of your super fund. Please speak to HBG Tax and Accounting if you are unsure of your needs.

Your superannuation funds website will contain a PDS (product disclosure statement) detailing the insurer they use and the details of the cover available. Employer default super funds usually provide death and TPD insurance cover and may be available without health checks. You can normally decrease, increase or cancel your default insurance cover within the account as your circumstances vary.

ATO will attempt to Consolidate Inactive, Low balance super accounts

There is over $17.5 billion in unclaimed superannuation currently owed to Australians. From 1 July 2019, superannuation providers must report and pay inactive low-balance accounts to the ATO twice a year,  the ATO will then attempt to consolidate the superannuation.

These accounts include:

  • inactive low-balance accounts (an account that has been in-active for 16 months and has a balance less than $6,000)
  • former temporary residents who leave with unclaimed superannuation
  • lost member accounts that are small or insoluble
  • members aged 65 years or older, non-member spouses and deceased members with unclaimed superannuation

A Reduction in Fees and Charges

The 2019/2020 financial year also sees exit fees (including fees on partial withdrawals) stopped for all superannuation fund members no matter what their account balance.

If a member’s final superannuation fund balance is less than $6,000 in a year, new caps apply to fees charged by superannuation providers. Administration and investment fees and other imposed charged on these accounts will be capped at 3%. Anything over 3% that has been charged, needs to be reimbursed to members within 3 months.

This article was written based on information supplied from Knowledge Shop Newsletter July 2019.

The material and contents provided in this article is of an informative nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.