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2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
SUPERANNUATION GUARANTEE (ADMINISTRATION) AMENDMENT
BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Changes to the superannuation guarantee ................... 5
Index ..................................................................................................... 11
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ATO Australian Taxation Office
ITAA 1997 Income Tax Assessment Act 1997
RSA retirement savings account
SG superannuation guarantee
SGAA 1992 Superannuation Guarantee (Administration)
Act 1992
1
General outline and financial impact
Changes to the superannuation guarantee
Schedule 1 to this Bill amends the Superannuation Guarantee
(Administration) Act 1992 to increase the age of an employee at which the
superannuation guarantee (SG) no longer needs to be provided from 70 to
75, and to gradually increase the SG charge percentage from 9 per cent to
12 per cent.
Date of effect: These amendments commence on 1 July 2013. These
provisions are dependent on the passing of the Minerals Resource Rent
Tax package.
Proposal announced: These amendments were announced in the
Stronger, Fairer, Simpler package of reforms, including the Treasurer's
and the Minister for Financial Services, Superannuation and Corporate
Law's joint Media Release No. 027 of 2 May 2010 and the Treasurer's
and then Prime Minister's joint Media Release No. 028 of 2 May 2010.
These amendments were also announced in the 2010-11 Budget.
Financial impact:
Increasing the superannuation guarantee charge percentage to
12 per cent
The financial cost rises as the SG percentage gradually increases.
2011-12 2012-13 2013-14 2014-15
- - -$240m -$500m
Raising the superannuation guarantee age limit from 70 to 75
In the 2013-14 income year, the first year for this measure, employers are
required to pay additional SG amounts for their workers aged up to 75, on
which superannuation funds will be subject to income tax at a 15 per cent
rate.
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Superannuation Guarantee (Administration) Amendment Bill 2011
However, in the 2014-15 income year, at the time employers lodge their
tax returns for the 2013-14 income year, employers will be able to claim a
deduction for the superannuation amounts paid to workers aged up to 75,
which will be an ongoing cost to revenue.
2011-12 2012-13 2013-14 2014-15
- - $15m -$15m
Compliance cost impact: Low.
4
Chapter 1
Changes to the superannuation guarantee
Outline of chapter
1.1 Schedule 1 to the Superannuation Guarantee (Administration)
Amendment Bill 2011 amends the Superannuation Guarantee
(Administration) Act 1992 (SGAA 1992). Specifically, the amendments
will:
· raise the superannuation guarantee (SG) age of an employee
at which the SG no longer needs to be provided from 70 to
75; and
· gradually increase the SG charge percentage from 9 per cent
to 12 per cent.
Context of amendments
1.2 Under the SG scheme, all employers are required to make a
prescribed minimum level of superannuation contributions to a complying
superannuation fund or a retirement savings account (RSA) on behalf of
their eligible employees.
1.3 The minimum level of employer superannuation contributions
is the SG `charge percentage' (as defined in subsection 19(2) of the
SGAA 1992) applied to each eligible employee's ordinary time earnings.
The current SG charge percentage is 9 per cent.
1.4 The Superannuation Guarantee Charge Act 1992 imposes the
SG charge on any employer who has an SG shortfall in respect of a
quarter. Where an employer does not contribute the minimum level of
required employer superannuation contributions on time, they will be
liable to pay to the Australian Taxation Office (ATO) a charge on the
SG shortfall. The SG shortfall for a quarter is calculated pursuant to
section 17 of the SGAA 1992 and consists of the total of the employer's
individual SG shortfalls for that quarter, a nominal interest component,
and an administration component.
1.5 To avoid incurring a liability for the SG charge, the required
SG contributions for a quarter must be made no later than 28 days after
the end of the quarter. In addition, if the required payment is not made by
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Superannuation Guarantee (Administration) Amendment Bill 2011
28 days after the end of the quarter, the employer will not be able to claim
a deduction for the payment of the SG charge or payment of late
superannuation contributions which are offset against the SG charge.
1.6 Currently, the SG charge is payable by employers who do not
contribute 9 per cent of ordinary time earnings on time for eligible
employees under the age of 70.
1.7 This Bill extends liability for the SG charge for employers as
they will be required to contribute the relevant percentage (for the
particular quarter) of ordinary time earnings for eligible employees under
the age of 75.
Raising the superannuation guarantee age limit from 70 to 75
1.8 Under subsection 19(1) and paragraph 27(1)(a) of the
SGAA 1992, salary or wages paid to an employee who is 70 or over
does not count towards the calculation of the SG shortfall. Since there is
no SG shortfall, this means that employers are not required to make
SG contributions for employees who are aged 70 or over.
1.9 This Bill raises the SG age limit from 70 to 75 and requires
employers to contribute to complying superannuation funds of eligible
mature age employees under the age of 75.
1.10 Raising the SG age limit to 75 brings the SG amendments in line
with provisions of the Income Tax Assessment Act 1997 (ITAA 1997)
which allow employers to claim a full deduction for all contributions to
superannuation funds made on behalf of their employees up to age 75 and
allow self-employed people to make deductible contributions until they
turn 75.
Increasing the superannuation guarantee charge percentage to
12 per cent
1.11 In order to avoid an SG shortfall in respect of a quarter,
employers currently have to pay 9 per cent of ordinary time earnings in
superannuation contributions for eligible employees. In order to increase
future retirement incomes for Australian workers, this Bill gradually
increases the SG charge percentage each year, reaching 12 per cent in
2019-20.
1.12 Employers will now have to contribute the applicable SG charge
percentage for the quarter to avoid being liable for the SG charge.
6
Changes to the superannuation guarantee
Summary of new law
Raising the superannuation guarantee age limit from 70 to 75
1.13 This Bill increases the age of an employee for which the SG no
longer needs to be provided from 70 to 75 from 1 July 2013.
1.14 From 1 July 2013, employers will have to make superannuation
contributions on behalf of eligible employees under the age of 75.
Increasing the superannuation guarantee charge percentage to
12 per cent
1.15 To ensure greater retirement incomes for individuals, this Bill
increases the SG charge percentage from 9 per cent to 12 per cent. The
change is achieved by way of a gradual increase in the charge percentage
over a number of years.
1.16 Compliance with the SG requirements for employers will be
based on whether an employer has contributed, by the payment due date,
the SG charge percentage of ordinary time earnings for their eligible
employees for the applicable quarter.
Comparison of key features of new law and current law
New law Current law
Employers have an SG liability for Employers have an SG liability for
eligible employees who are under the eligible employees who are under the
age of 75. age of 70.
In 2019-20, employers will have an Employers have an SG liability for
SG liability for their eligible their eligible employees of 9 per cent
employees of 12 per cent of the of the employee's ordinary time
employee's ordinary time earnings. earnings.
The increase from 9 per cent to
12 per cent will be gradual,
commencing in 2013-14.
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Superannuation Guarantee (Administration) Amendment Bill 2011
Detailed explanation of new law
Raising the superannuation guarantee age limit from 70 to 75
1.17 Under the current legislation, an employer is only obligated to
pay the SG charge in respect of employees who are under the age of 70.
1.18 This Bill increases the age of an employee at which the SG no
longer needs to be provided from 70 to 75. Employers will now
be required to contribute to superannuation on behalf of employees under
the age of 75. [Schedule 1, item 4, paragraph 27(1)(a)]
Example 1.1
Evelyn, aged 72, is working as a teacher.
Under the current SG legislation, her employer is not obligated to pay
the SG as she has reached the age of 70.
Under the proposed legislation, assuming she meets the other
requirements of the SGAA 1992 and her salary and wages are not
excluded by section 27 of the SGAA 1992; her employer is obligated
to pay the applicable SG percentage based on her ordinary time
earnings for the quarter.
1.19 Where an employee turns 75 during the quarter, salary and
wages paid after the employee turns 75 will be excluded by section 27 of
the SGAA 1992 [Schedule 1, item 4, paragraph 27(1)(a)]. Therefore, an
employer remains liable to pay the SG charge where they do not make
contributions based on ordinary time earnings from when their employee
was under the age of 75.
Example 1.2
Sarah was paid $400 a week by her employer. Her salary and wages
(comprised wholly of ordinary time earnings) for the quarter was
$5,200. She turned 75 in the third week of July.
If Sarah's employer did not make superannuation contributions on
Sarah's behalf, the SG shortfall for the quarter would be based on
salary or wages paid which are not excluded by section 27 of the
SGAA 1992. In this case, the SG shortfall will be calculated in
relation to the $800 paid prior to Sarah turning 75, as any salary or
wages paid after Sarah turned 75 are excluded by paragraph 27(1)(a) of
the SGAA 1992.
8
Changes to the superannuation guarantee
Increasing the superannuation guarantee charge percentage to
12 per cent
1.20 Currently employers must make compulsory SG contributions of
9 per cent of their employees' ordinary time earnings, subject to specific
exceptions for some employees.
1.21 This Bill gradually increases the SG charge percentage by
specific amounts until it reaches 12 per cent in the 2019-20 income year.
[Schedule 1, item 2, subsection 19(2)]
Example 1.3
In relation to a quarter in the 2013-14 income year, Adam's ordinary
time earnings is $30,000.
His employer, is required to pay the SG rate of 9.25 per cent on
Adam's ordinary time earnings.
In relation to the quarter in question, Adam's employer must make a
superannuation contribution of $2,775 in respect of Adam.
Example 1.4
In relation to a quarter in the 2019-20 income year, Damian's ordinary
time earnings is $30,000.
His employer, is required to pay the SG rate of 12 per cent on
Damian's ordinary time earnings.
In relation to the quarter in question, Damian's employer must make a
superannuation contribution of $3,600 in respect of Damian.
Application provisions
1.22 These amendments apply for the 2013-14 and subsequent
income years [Schedule 1, section 2] and are dependent on the passing of the
Minerals Resource Rent Tax package.
1.23 This Bill provides for transitional arrangements in gradually
moving to the 12 per cent SG charge percentage by 2019-20. [Schedule 1,
item 2, subsection 19(2)]
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Superannuation Guarantee (Administration) Amendment Bill 2011
1.24 The transitional schedule for the increase in the SG charge
percentage is reproduced below:
Table 1.1
Quarter during the income year Charge percentage (%)
2013-14 9.25
2014-15 9.5
2015-16 10
2016-17 10.5
2017-18 11
2018-19 11.5
2019-20 and subsequent income years 12
10
Index
Schedule 1: Superannuation guarantee age and percentage
Bill reference Paragraph number
Item 2, subsection 19(2) 1.21, 1.23
Item 4, paragraph 27(1)(a) 1.18, 1.19
Section 2 1.22
11
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