House of Representatives

Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 9 - Allow the offsetting of a late payment of contributions against an employer's superannuation guarantee charge

Outline of chapter

9.1 Schedule 6 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 to allow the offsetting of a late payment of contributions against an employer's superannuation guarantee charge.

Context of amendments

9.2 Where an employer fails to meet its superannuation guarantee obligations by the due date, and subsequently pays the relevant contributions to a complying superannuation fund or retirement savings account, a double payment problem may occur. A superannuation guarantee charge liability still arises, which includes the full amount of any shortfall, even though contributions relating to the relevant period had subsequently been paid into an employee's superannuation fund or retirement savings account by the employer.

9.3 Where the relevant employee's employment is ongoing, the late contribution can be used as an advance payment in respect of that employee for a future contribution period. Where the employment is non-ongoing, the employer will effectively make contributions twice for that employee.

Summary of new law

9.4 The amendments introduce an offsetting rule so employers that make a late contribution to a complying superannuation fund or retirement savings account after the due date (the due date being 28 days from the end of the relevant quarter), can offset the late payment against the components of the superannuation guarantee charge liability that relate to the relevant employee's entitlements. The late contribution must, however, be made before the end of the 28th day of the second month after the end of the quarter. Employee-related components of the superannuation guarantee charge are the individual superannuation guarantee shortfall and nominal interest components.

9.5 In order to access the offsetting rule, an employer must elect to do so by providing the Commissioner of Taxation (Commissioner) a completed 'approved form', within 4 years of the superannuation guarantee charge for the relevant quarter becoming payable. The employer must indicate to which quarter the payment relates. The election is irrevocable.

9.6 Amounts paid late into a complying superannuation fund or retirement savings account, and used to offset a resulting superannuation guarantee charge, will not be tax deductible. This is to ensure that employers who incur and correctly pay the superannuation guarantee charge to the Australian Taxation Office (ATO) by the superannuation guarantee statement due date, are not disadvantaged compared to those employers who make late contributions before the end of the 28th day of the second month after the end of the quarter and utilise the offset rule.

Comparison of key features of new law and current law
New law Current law
A contribution paid late to a complying superannuation fund or retirement savings account before the end of the 28th day of the second month after the end of the quarter can be used to offset the employee related components of the corresponding superannuation guarantee charge. The offsetting contributions are not tax deductible. A contribution paid late to a superannuation fund or retirement savings account after the due date (28 days after the end of the quarter), cannot be used to offset the employee related components of the corresponding superannuation guarantee charge. The employer will be liable for the entire superannuation guarantee charge, even though the late contribution has been paid.

Detailed explanation of new law

9.7 Schedule 6 to this Bill inserts section 23A which allows amounts paid to a superannuation fund or retirement savings account after the due date (the due date being 28 days from the end of the relevant quarter), but before the end of the 28th day of the second month after the end of the quarter, to offset the corresponding superannuation guarantee charge. Employers must elect that this contribution be offset, in the approved form, within 4 years of the superannuation guarantee charge becoming payable. This election is irrevocable. [Schedule 6, item 5, subsections 23A(1) and (2)]

9.8 Only amounts relating to the employee's individual superannuation guarantee shortfall and the employee's nominal interest component can be offset. The late contribution will be offset against the nominal interest component before any remainder is offset against the employer's individual superannuation guarantee shortfall for the employee for the quarter. Any amount used as an offset cannot be taken into account for any other quarter, or be used to reduce the charge percentage under sections 22 and 23 of the Superannuation Guarantee (Administration) Act 1992 . [Schedule 6, item 5, subsections 23A(3) to (5)]

Example 9.1 PLR Pty Ltd pays a superannuation contribution of $1,200 for its employee, Jennifer, after the due date, but before the end of the 28th day of the second month after the end of the quarter (payment made on 30 April for the March quarter). This late payment can offset PLR Pty Ltd's superannuation guarantee charge for the quarter for which the payment was late (March quarter). The superannuation guarantee charge (say $1,300) still arises, but the portion of the superannuation guarantee charge that relates to Jennifer's entitlements (shortfall of $1,200 and nominal interest of $80) can be offset to the extent of the amount of the late payment. Therefore, PLR Pty Ltd can offset the superannuation guarantee charge by $1,200 ($80 for the nominal interest first, then the remaining $1,120 can be used to offset the individual superannuation guarantee shortfall for Jennifer). PLR Pty Ltd would still be required to pay the remainder of the superannuation guarantee charge (remaining individual superannuation guarantee shortfall of $80, and administration of $20) to the ATO. The ATO will deposit the individual superannuation guarantee shortfall ($80) in Jennifer's superannuation fund or retirement savings account, and retain the administration component ($20).

9.9 Any amount of a late contribution made before the end of the 28th day of the second month after the end of the quarter, that is in excess of the employee's individual superannuation guarantee shortfall and nominal interest component for the relevant quarter, cannot be offset. Instead, this excess amount can be applied to the current quarter, or to a future quarter under subsection 23(7) of the Superannuation Guarantee (Administration) Act 1992 .

Example 9.2 In Example 9.1, if the amount of the late contribution had been $1,400, $1,280 of this could be used to offset PLR Pty Ltd's superannuation guarantee charge for the March quarter. The remaining $120 of the late contribution could be used as a contribution for the June quarter, or for any subsequent quarter beginning within 12 months of the date the contribution was made. PLR Pty Ltd would still be required to pay the $20 administration charge to the ATO.

9.10 The amendments will insert the definition of 'approved form' in subsection 6(1) of the Superannuation Guarantee (Administration) Act 1992 , giving it the same meaning as in section 388-50 of the Taxation Administration Act 1953. [Schedule 6, item 4, subsection 6(1)]

9.11 Penalties under Part 7 of the Superannuation Guarantee (Administration) Act 1992 will apply to the full amount of the initial superannuation guarantee charge, before the effect of any offset under section 23A is taken into account. [Schedule 6, item 9, section 62A]

Example 9.3 In Example 9.1, any penalties under Part 7 will be applied to the full $1,300 superannuation guarantee charge, and not the amount remaining after the offset has been applied ($100).

9.12 Any amount offset under section 23A will not be deductible. [Schedule 6, items 1 and 2, sections 12-5 and 26-85]

9.13 The due date for the lodgement of the superannuation guarantee statement will be extended, to align with the end of the additional offset period. This will reduce the likelihood of an employer lodging a superannuation guarantee statement, then subsequently making a contribution to an employee's fund that can be offset against the superannuation guarantee charge in that superannuation guarantee statement. This will simplify the administration of the offset rule for the ATO. It will also reduce complexity in the legislation, and will make the system easier for employers to understand. [Schedule 6, items 3, 6, 7 and 8, subsections 5(3) and 33(1), paragraph 35(1)(d) and subsection 46(2)]

9.14 As a result, the nominal interest charge in respect of the lodgement of the superannuation guarantee statement will be calculated up until the extended date. That is, nominal interest will be calculated until the 28th of the second month after the end of the quarter, instead of until the 14th as previously applied. Nominal interest is charged until the superannuation guarantee statement due date, even if the employer lodges the statement and makes the payment before the due date for the lodgement of the superannuation guarantee statement.

Application and transitional provisions

9.15 The amendments made by items 1, 2, 4, 5 and 9 apply to late payments of contributions made on or after 1 January 2006. The amendments made by items 3, 6, 7 and 8 of this Schedule apply to superannuation guarantee obligations relating to the quarter ending on 31 December 2005 and later quarters. [Schedule 6, item 10]


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