Senate

Revised Explanatory Memorandum

Circulated by the authority of the Treasurer, the Hon Wayne Swan MP

Chapter 2 Extending the superannuation guarantee late payment offset

Outline of chapter

4.1 Schedule 2 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 (SGAA) to extend the late payment offset that allows employers to use a late contribution to offset part of their superannuation guarantee (SG) charge liability.

Context of amendments

4.2 The SGAA prescribes a minimum level of superannuation support that all employers are required to provide for their eligible employees, either by making contributions to a complying superannuation fund or paying the SG charge. The prescribed minimum level of support is 9 per cent of the employee's ordinary time earnings. In order to avoid the SG charge, employers have been required to make contributions on behalf of their employees at least quarterly since 1 July 2003.

4.3 Superannuation contributions reduce an employer's SG charge liability if they are made by the due date (which is 28 days after the end of the quarter). An employer who fails to pay the required amount of contributions by the due date is liable to pay the SG charge to the Australian Taxation Office (ATO). The SG charge includes the contribution shortfall amount, a nominal interest component and an administration charge.

4.4 From 1 January 2006, an employer who makes a late contribution to an employee's superannuation fund within one month after the due date can use that late payment to offset against part of their SG charge for the employee for the quarter. However, if an employer makes a contribution more than one month after the due date they are unable to use the offset. This effectively means the employer must pay the same amount twice for a quarter for the same employee; once when they made the late contribution to the fund and again when they are required to pay the SG charge to the ATO.

Example 4.1

Debbie was required to make a $1,000 contribution for the March 2006 quarter commencing on 1 January 2006 on behalf of her employee, Catherine. Debbie has failed to make the contribution by the due date of 28 April 2006 but makes a late contribution of $1,000 into Catherine's superannuation fund on 5 June 2006. Debbie is assessed on 1 July 2006 with an SG charge liability for the March 2006 quarter in respect of Catherine. The SG charge includes the shortfall amount equal to the contribution which has in fact now been paid. Before these changes, the late payment offset could not be used by Debbie since her contribution was not made by 28 May 2006.

4.5 Amending the SGAA to extend the late payment offset for employers who make a contribution after the due date, will reduce the incidence of employers being forced to pay the same amount twice for a quarter for the same employee.

Summary of new law

4.6 Schedule 2 to this Bill amends the SGAA to extend the period within which an employer can make a superannuation contribution after the due date and still be eligible to use the late payment offset.

4.7 The amended late payment offset is available to employers who:

•

have made a contribution for an employee after the due date for the quarter;

•

have an outstanding SG charge for the employee for that quarter; and

•

elect, in the approved form, to use the offset.

4.8 These amendments ensure that employers who fail to make sufficient contributions by the due date, but subsequently made a contribution directly to the employee's fund, do not have to pay the same amount twice (once to the fund and once to the ATO). This is achieved as the amended late payment offset allows employers to use a late contribution to offset part of their SG charge for the employee.

Comparison of key features of new law and current law

Detailed explanation of new law

Eligibility to use the offset

4.9 The amended late payment offset is available to an employer who:

•

has made a contribution after the due date for the quarter for an employee [ Schedule 2, item 1, paragraph 23A(1 )( a )];

•

has an unpaid SG charge for that quarter for the employee; and

•

elects, in the approved form, that the contribution be offset against that SG charge.

4.10 The contribution can only be offset against an SG charge which relates to the same quarter and to the same employee.

4.11 Transitional provisions will allow an employer to use the offset if they have an SG charge for a year (rather than a quarter) which becomes payable after the commencement of this Schedule. [ Schedule 2, item 8 ]

4.12 Transitional provisions will also enable an employer to use the offset if they have an SG charge liability for a year (rather than a quarter) which becomes payable after the commencement of this Schedule. [ Schedule 2, item 9 ]

Election for the offset

4.13 An election to use a contribution as an offset must be in the approved form. The election can be made either in the first SG statement for the quarter or, if the employer has already been assessed for the quarter, within four years from when the SG charge for that quarter became payable. [ Schedule 2, item 2, subsection 23A(2 )]

4.14 Subsection 23A(2) enables an election to be communicated to the ATO and for the contribution to be used as an offset. Subsection 36(3) and section 46 of the SGAA set out when an SG charge becomes payable.

4.15 An employer cannot elect to use the offset before a contribution is made, and an election can only be made if the contribution is made after the due date. [ Schedule 2, item 1, paragraph 23A(1 )( a )]

4.16 If the election is made after the SG charge for the quarter has been assessed, the assessment must be amended before the employer's liability can be reduced. [ Schedule 2, item 3, subsection 23(4A )]

4.17 Section 37 of the SGAA empowers the Commissioner of Taxation (Commissioner) to amend an assessment, including an amendment to reduce an employer's SG charge liability as a result of applying the offset under section 23A of the SGAA.

4.18 An election to use a contribution as an offset cannot be revoked. [ Schedule 2, item 2, subsection 23A(2 )]

Applying the offset

4.19 When an election in the approved form is lodged with the Commissioner in accordance with section 23A of the SGAA, the late contribution is applied to offset against the SG charge for the relevant quarter for the relevant employee.

4.20 The contribution is first used to offset against the nominal interest component of the SG charge for the quarter for the employee, before any remainder of the contribution is used to offset against the employer's SG shortfall for that quarter for that employee. This is in accordance with subsection 23A(4) of the SGAA.

Interest and penalties

4.21 Significant incentives remain to ensure employers make their SG payments on time. The interest and administration components of the SG charge are still required to be paid by the employer and penalties can be imposed by the ATO for late payments. As well, due to sections 26-95 and 290-95 of the Income Tax Assessment Act 1997 , the SG charge and the late payment offset are not tax deductible to the employer.

4.22 An employer who fails to pay the SG charge when it becomes payable is liable to pay the general interest charge. Subsection 8AAC(3) of the Tax Administration Act 1953 and section 49 of the SGAA set out how the general interest charge is calculated for the purposes of the SG charge.

4.23 When an election is made for the first time under section 23A of the SGAA, the general interest charge accrues on the original SG shortfall amount from the day the relevant SG charge became payable to when an election in the approved form is lodged with the Commissioner. [ Schedule 2, items 4 to 7 ]

4.24 From the day the election in the approved form is lodged with the Commissioner, the general interest charge will accrue on any remainder of the original SG shortfall amount (after the offset has been applied). [ Schedule 2, item 7, subsection 49(3A )]

4.25 If more than one election is made under section 23A of the SGAA with respect to the same SG charge, the general interest charge accrues on the remainder of the original SG shortfall amount after the offset has been applied, and accrues from the time the approved form is lodged with the Commissioner to when the next election is lodged. [ Schedule 2, item 7, subsection 49(3A )]

4.26 The general interest charge continues to accrue until the time when both the SG charge and the general interest charge are fully paid, in accordance with subsection 49(3) of the SGAA.

Example 4.2

Following on from Example 2.1, once the law is enacted Debbie decides to use the $1,000 late contribution she made into Catherine's fund on 5 June 2006, to offset her SG charge for the March 2006 quarter with respect to Catherine. The SG charge includes a shortfall amount of $1,000 and a nominal interest component of $100. Debbie lodges a late payment offset form with the ATO on 7 August 2008.

The $1,000 contribution is used to offset Debbie's SG charge for the March 2006 quarter with respect to Catherine. The contribution is first used to pay the nominal interest component before any remainder is used to pay the SG shortfall amount. The general interest charge accrues on the original SG shortfall amount ($1,000) from 1 July 2008 (when the SG charge became payable) to 7 August 2008 (when the election is lodged). After the election, Debbie's remaining SG shortfall amount is $100.

Assume that in September 2008 Debbie makes a $50 contribution into Catherine's fund and on 18 October 2008 she lodges a late payment offset form to elect to use that contribution as an offset to her SG charge for the March 2006 quarter. The general interest charge accrues on the remaining SG shortfall amount ($100) from 7 August 2008 (when the first election was lodged) to 18 October 2008 (when the second election is lodged). After the election, Debbie's remaining SG shortfall amount is $50.

Assume that on 3 December 2008 Debbie decides to fully pay her SG charge and general interest charge for the March 2006 quarter with respect to Catherine. The general interest charge accrues on the remaining SG shortfall amount ($50) from 18 October 2008 (when the second election was made) to 3 December 2008 (when the SG charge and general interest charge are both fully paid).

Application and transitional provisions

Application provision

4.27 These amendments apply from the date of Royal Assent.

Transitional provisions

4.28 These amendments contain transitional provisions that apply to:

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employers who have an SG charge for a year that becomes payable after the commencement of this Schedule [ Schedule 2, item 9 ]; and/or

•

employers who have an unpaid SG charge at the commencement of this Schedule [ Schedule 2, item 8 ].

Transitional provisions for employers with a superannuation guarantee charge for a year that becomes payable after the commencement date

4.29 Since 1 July 2003, employers have been required to make SG contributions every quarter, and those who fail to do so incur the SG charge for the quarter. Prior to this, employers were required to make SG contributions every year, and those who failed to do so incurred liability for the SG charge for the year.

4.30 Under the transitional provisions, the offset is available to an employer who has an SG charge for a year that becomes payable after the commencement of this Schedule. [ Schedule 2, item 9 ]

4.31 Under the transitional provisions, for the purposes of applying the offset and calculating liability for the SG charge (including any additional SG charge), the SGAA applies to the employer so that references to 'quarter' are replaced with 'year'. [ Schedule 2, item 9 ]

Transitional provisions for employers with an unpaid superannuation guarantee charge at the commencement date - election to use the offset

4.32 Employers who are eligible to use the offset must make the election either in the first SG statement or within four years from when the SG charge for the quarter became payable. [ Schedule 2, item 2, subsection 23A(2 )]

4.33 Under the transitional provisions, where an employer has been assessed with the SG charge prior to the date of commencement of this Schedule and the charge remains unpaid at that date, then an election to use the offset for the remaining SG charge must be made within four years from the date of commencement. [ Schedule 2, subitem 8(2 )]

4.34 These transitional provisions apply to employers who have an unpaid SG charge for a quarter and to employers who have an unpaid SG charge for a year, at the commencement of this Schedule. [ Schedule 2, subitem 8(4 )]

4.35 After the commencement of this Schedule, if the employer incurs a new SG shortfall, then the employer is required to make the election either in the first SG statement for the new shortfall or within four years from when the new SG charge becomes payable. This is in accordance with subsection 23A(2) of the SGAA.

Transitional provisions for employers with an unpaid superannuation guarantee charge at the commencement date - amending assessments

4.36 Section 37 of the SGAA empowers the Commissioner to amend an assessment. Subsection 37(5) of the SGAA allows the Commissioner to amend an assessment if an employer applies to have their assessment amended within four years from when the SG charge under that assessment became payable.

4.37 Under the transitional provisions, an employer who elects to use the offset under section 23A of the SGAA must apply to have the relevant assessment amended within four years from the commencement of this Schedule, before the Commissioner may amend that assessment. [ Schedule 2, item 8, paragraph ( 3 )( b )]

4.38 According to subsection 37(3) of the SGAA, an amendment to reduce the liability of an employer under an assessment is not effective unless the amendment is made within four years from the day the assessment was made.

4.39 Under the transitional provisions, an amendment to reduce the employer's SG charge liability (as a result of an offset under section 23A of the SGAA) is not effective unless the amendment is made within four years from the commencement of this Schedule. [ Schedule 2, item 8, paragraph ( 3 )( a )]

4.40 These transitional provisions apply to employers who have an unpaid SG charge for a quarter and to employers who have an unpaid SG charge for a year, at the commencement of this Schedule. [ Schedule 2, subitem 8(4 )]

4.41 After the commencement of this Schedule, if an employer incurs a new SG shortfall (whether in respect to the same or to a different employee) and they elect to use the offset for the shortfall, then the employer is required to apply to amend the relevant assessment within four years from the day the new SG charge becomes payable. Further, the employer's liability is not reduced unless the amendment is made within four years from the day the assessment was made. This is in accordance with subsections 37(3) and (5) of the SGAA.

Consequential amendments

4.42 These amendments contain consequential amendments to sections 37 and 49 of the SGAA and, for the purposes of the transitional provisions, to other parts of the SGAA which relate to an SG charge for a quarter. These amendments do not contain consequential amendments to other Acts.