House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

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.

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.

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.

Compliance cost impact: Low.

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 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.

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

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.

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)]

1.24 The transitional schedule for the increase in the SG charge percentage is reproduced below:

Index

Schedule 1: Superannuation guarantee age and percentage