January 2020 saw the implementation of the Salary Sacrifice Integrity measures, two connected measures which have a significant impact on the operation of salary sacrifice and the meeting of the Superannuation Guarantee.
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 included several measures impacting the operation of taxation laws within Australia, and specifically included the introduction of changes to the Superannuation Guarantee (Administration) Act 1992. The changes are targeted at salary sacrificing practices and aims, according to the summary of the Bill, to “ensure that an individual’ salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee contributions” .
The amendments to the Superannuation Guarantee (Administration) Act 1992 come into effect this month and amount to two connected measures to standardise salary sacrifice treatment, and ensure that all employees, regardless of their salary sacrifice status, are receiving at least the Guarantee contribution.
The first of the measures outlines that employers must pay the full Superannuation Guarantee on ALL Ordinary Time Earnings of the employee, including any portion that they have salary sacrificed.
Under this measure if the employee earns $ 2,000 a week Ordinary Time Earnings and salary sacrifices $ 1,000 a week, the Superannuation Guarantee must be paid on the full $ 2,000 per week earnt as Ordinary Time Earnings.
The second of the measures is connected but aims to clarify the expectation. It states that the amount contributed as a salary sacrifice by an employee, can not be counted as part of the Superannuation Guarantee required to be paid by the employer.
Under this measure if the employee earns $ 2,000 a week Ordinary Time Earnings and salary sacrifices $ 1,000 a week the following are the deposits required;
- $ 450 salary sacrifice (the employees money contributed to the employees fund)
- 9.5% Superannuation Guarantee on the $ 2,000 Ordinary Time Earnings = $ 190.00 (the employer pays this amount, it is not deducted from or counted in the amount that the employee is contributing as a salary sacrifice)
- Total contribution – $ 1,190.00
In discussing the changes Elisha Radwanowski, Executive Manager for Employment and Training for ACAPMA outlined “These measures combined will appear to many businesses as unnecessary explanations of how the salary sacrifice system has always operated in their businesses, given the nature of salary sacrifice at its core is simply the employee directing a portion of their wages be deposited in a different account (eg 50% into a savings account and 50% into a superannuation account). However, some businesses have appeared to misinterpret the intention, which is what has resulted in the need for the clarification bought by the changes.”
“Anything tax related can get tricky very quickly, and businesses should seek processional tax advice on such matters, but it is worth noting that the proposed Superannuation Guarantee Amnesty Bill is still being discussed in parliament, and if passed will provide a one off amnesty for employers to self-correct any unpaid superannuation contributions. When the Bill passes there will be six months for businesses to calculate and pay any underpaid amounts, so the time to prepare and understand any shortfalls, and to budget for them, is now” Elisha continued.
The changes to salary sacrificing are in place now.
The proposed amnesty is likely to come into effect soon, so preparations should be undertaken now.
For more information on the changes to the salary sacrifice elements of the Superannuation Guarantee see the Australian Tax Office website: https://www.ato.gov.au/General/New-legislation/In-detail/Super/Superannuation-Guarantee—Salary-sacrifice-integrity/
For more information on the progress of the Superannuation Amnesty see the Australian Tax Office website: https://www.ato.gov.au/Business/Super-for-employers/Proposed-Superannuation-Guarantee-Amnesty/