ATO Interpretative Decision
ATO ID 2007/199
Superannuation
Superannuation guarantee: existing employee elections after 30 June 2007FOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will an employer who has received an election from an employee prior to 30 June 2007 under subsection 19(4) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) (repealed as of 1 July 2007), and who, pursuant to that election does not make any contributions for a quarter commencing after 30 June 2007 for the benefit of the employee, have an individual superannuation guarantee shortfall for the employee for a quarter?
Decision
No, the employer has a right to protection from the superannuation guarantee charge once an employee makes an election under subsection 19(4) of the SGAA for the quarter in which the election is made and all later quarters. This right is preserved notwithstanding that the law conferring this right is repealed, and provides protection to the employer for the duration of the employment contract.
Facts
In 2005 an employee reached their pension reasonable benefit limit (RBL). As a result the employee made an election under subsection 19(4) of the SGAA that the employer should not be liable to the superannuation guarantee charge in respect of that employee from that quarter and for all later quarters. The employer, pursuant to that election, did not make any contributions for the benefit of the employee for a quarter commencing after 30 June 2007. The employee is still engaged by the employer after 1 July 2007 under the same employment contract.
From 1 July 2007 super simplification changes have removed RBLs. Consequently, subsections 19(4) to 19(7) of the SGAA, which deal with employee elections to forgo superannuation contributions because the pension RBL has been reached, were also repealed from 1 July 2007 by item 350 of Schedule 1 to the Superannuation Legislation (Amendment) Simplification Act 2007 (SLASA).
Reasons for Decision
Prior to 1 July 2007, if an employee had benefits in complying superannuation funds in excess of their pension RBL, the employee could make an election under section 19(4) of the SGAA (repealed as of 1 July 2007). The effect of the election was that the employer no longer had an obligation to provide superannuation guarantee support for the employee for the quarter in which the election was made and for all later quarters. Although, the employer could still choose to make superannuation guarantee contributions on behalf of the employee.
From 1 July 2007, item 350 of Schedule 1 to the SLASA repeals subsections 19(4) to 19(7) of the SGAA. Existing rights are not affected by repeal unless a contrary intention is shown. This is clear from paragraph 8(c) of the Acts Interpretation Act 1901 which states:
Where an Act repeals in the whole or in part a former Act, then unless the contrary intention appears the repeal shall not:
...
The Explanatory Memorandum for the Superannuation Legislation Amendment (Simplification) Bill 2007 does not support a contrary intention. At paragraph 2.7 it states:
Currently, employees with accumulated superannuation entitlements in excess of the pension RBL may elect not to receive superannuation contributions from their employers. As RBLs are abolished, from 1 July 2007, these elections will no longer be able to be made. As these elections were irrevocable, existing elections will remain in force.
In Statutory Interpretation in Australia, 6th edition, Pearce and Geddes explain the effect of paragraph 8(c) of the Acts Interpretation Act 1901. At page 21 they say:
The section refers to a right that has accrued; hence it is necessary to establish that the right that is claimed to be preserved is a real one and not one that is still in abstracto: Abbott v Minister for Lands [1895] AC 425. As was pointed out in that case, the repeal of any Act must affect 'rights' in the general sense as the law will henceforward be different from what it was. If the Interpretation Act section were to preserve these "rights" the effect of the repeal would be rendered nugatory. Channell J in Starey v Graham [1899] 1 QB 406 at 411 put it that a right acquired "means some specific right which in one way or another has been acquired by an individual, and which some persons have got and others have not got".
In this case, it is clear that the employer, having received a notice given under subsection 19(4) of the SGAA, acquired a real right, one that others did not acquire. The right ensured that the employer was not liable for the superannuation guarantee charge if it did not make superannuation contributions on behalf of the particular employee for the quarter in which the election was made and for all later quarters. Therefore, the repeal of subsections 19(4) to 19(7) of the SGAA from 1 July 2007 does not affect the existing protection the employer has if it does not make superannuation contributions on behalf of the employee after 1 July 2007.
This protection will last until the employment contract under which the employee conferred the right ceases.
While the employer is protected if it does not provide superannuation guarantee support for the employee, the employer may choose to make superannuation contributions on behalf of the employee and claim a deduction for this amount. The employer and employee may also choose to renegotiate their employment contract having regard to the repeal of subsections 19(4) to 19(7) of the SGAA.
Date of decision: 18 September 2007Year of income: 30 June 2008
Legislative References:
Superannuation Guarantee (Administration) Act 1992
subsection 19(4)
subsection 19(5)
subsection 19(6)
subsection 19(7)
paragraph 8(c) Superannuation Legislation (Amendment) Simplification Act 2007
Item 350 of Schedule 1
Other References:
Paragraph 2.7 of the Explanatory Memorandum for the Superannuation Legislation Amendment (Simplification) Bill 2007
Pearce, DC and Geddes, RS 2006, Statutory Interpretation in Australia, 6th edn, Butterworths, Chatswood NSW, pp. 201.
Keywords
Employer superannuation contributions
Superannuation
Superannuation guarantee charge
Date reviewed: 7 August 2018
ISSN: 1445-2782