Could you as an employer benefit from taking advantage of the Government’s new Superannuation Guarantee (SG) Amnesty? This article informs you of how you can wipe your SG slate clean, and enjoy some once-off taxation benefits in doing so.
Subject to the passage of legislation (which is currently before the Senate), the Amnesty will be available for the 12-month period from 24 May 2018 to 23 May 2019.
BACKGROUND
The latest data indicates that the “SG Gap” or SG Shortfall (the difference between the theoretical amount payable by employers to be fully compliant with their SG obligations and the amount they have actually paid) is $2.85 billion annually. This indicates that a concerning number of employers are not paying sufficient SG to their employees or are not paying it at all. In response to this and in order to recoup this key employee entitlement, the Government in late May 2018, announced a once-off, 12-month Superannuation Amnesty for employers.
BENEFITS
For an employer, the benefits of the Amnesty are:
- The administration component of the Superannuation Guarantee Charge (SGC) is waived (this is currently a $20 per employee, per quarter charge for whom there is an SG Shortfall)
- Part 7 penalties will not be applied. This can be up to 200% of the SG Charge that is payable (note that SG Charge includes the SG Shortfall amount that you owe to employees)
- All catch-up payments that you make during the 12-month Amnesty period will be tax deductible. The amendments also allow contributions that an employer has elected to offset against SG Charge imposed on the SG Shortfall disclosed in accordance with the Amnesty to be deducted from an employer’s assessable income. This ensures commensurate benefits are provided for employers who contribute directly to their employees’ funds when disclosing under the Amnesty as opposed to the benefits for those who instead make payments in relation to SG Charge and leave it to the ATO to distribute the amounts to the relevant funds.
By contrast, under the current law, SG Charge paid to the ATO is not deductible, and late contributions that an employer has made to an employees’ superannuation fund and has elected to offset against their SG Charge liability are also not deductible.
DETAILS
With a Bill to enact the new Amnesty now having been introduced to Parliament, we can reveal the details are as follows:
- The Amnesty applies to any SG Shortfall from the introduction of SG back on 1 July 1992 to the quarter ending 31 March 2018.
- You must voluntarily disclose amounts of SG Shortfall relating to the above period. Therefore, if an employer has already lodged an SG Charge Statement (and in that Statment disclosed particular SG Shortfalls), then those particular Shortfalls are not eligible for the Amnesty even if the amount of the Shortfall has yet to be paid. Likewise, Shortfalls that the ATO uncovers during current, future, or past audits of the employer are not eligible for the Amnesty. The disclosure of a new Shortfall must come from the employer, and must occur during the 12-month Amnesty period. By way of background, SG Charge Statements and SG Shortfalls operate under a self-assessment model. The ATO are in most cases unaware that an SG Shorfall exists except in the case where an employee lodges a complaint against their employer themselves, or the Shortfall is uncovered in an ATO audit. This lack of awareness by the ATO of past employer Shortfalls is why eligibility for the Amnesty rests on the disclosure by the employer of new, undisclosed Shortfalls.
- There is no requirement to actually make a payment to get the benefit of the Amnesty. Rather, you only need to disclose an SG Shortfall. However, where you fail to make a payment during the Amnesty period, you will not receive a deduction for the catch-up payments (which are only available during the Amnesty).
- Any payments made outside the Amnesty period are not eligible for a deduction. For example, if an employer discloses a Shortfall during the Amnesty period, and then makes a payment arrangement with the ATO to pay the required amounts back in instalments, any amounts paid after 23 May 2019 cannot be claimed as a deduction.
ACCESS
To access the Amnesty, employers or thier Advisors must first calculate the amount payable (the SG Shortfall, plus nominal interest) and lodge one of the following forms:
- SG Amnesty Fund payment form (where you wish to access the Amnesty and can pay the amount in full (including nominal interest) direct to an employee’s superannuation fund)
- SG Amnesty ATO payment form (where you wish to access the Amnesty but cannot pay the amount owing in full). If an employer has already lodged an SGC Statment or received an SGC assessment for a quarter, they can only use this form.
Employers need to lodge these completed forms electonically through the Business Portal or their Accountant or Bookkeeper on their behalf via the BAS Agent or Tax Agent Portal respectively. There is now a radio button on all portals. Information that must be provided includes:
- Details of Employer
- Number of quarters covered
- Number of employees, (no employee details are required)
- Amount to be paid.
CONCLUSION
Legislation to enact this Amnesty was introduced into Parliment in late May and has been passed by the House of Representatives. It is currently before the Senate. Interestingly, the Opposition have criticised the legislation which it says shows leniency to non-complying employers. Therefore, it is no absolute certainty that the Amnesty will be passed into law over the coming months. For this reason, if you are contemplating disclosing past shortfalls specifically to get the benefits of the Amnesty (including claiming a deduction for their late contributions) then it may be prudent to hold off until such time the Amnesty actually becomes law. We will keep you apprised of the passage of the legislation through Parliament.
Irrespective of the Amnesty however, all employers should strongly consider coming forward to disclose and pay past shortfalls to get their Superannuation Guarantee affairs in order. The Government is committing more resources to this area – including requiring Superannuation Funds to report more regularly to the ATO (at least once each month) – meaning non-complying employers may be easily detected going forward.
For more on this subject: Members – login to the members area, Useful Links tab – watch the Tackling Tax video ‘Superannuation Amnesty’ presented by our CEO Kelvin Deer. https://mytaxsavers.com.au/ 2017/2018 is the first year that individuals can reduce their tax liability for the year by making a pre-1 July personal superannuation contribution.
To recap, new laws were introduced effective 1 July 2017 allowing all individuals up to age 75 to claim an income tax deduction for personal, after-tax superannuation contributions (pre-tax contributions, also known as salary sacrifice contributions, are deductible to your employer not you). Before this date, you could only claim a deduction for your personal contributions where less than 10% of (a) your assessable income (b) your reportable fringe benefits and (c) your reportable emaployer superannuation contributions (e.g. salary sacrifice contibutions) for the year were from being an employee – this was known as the “10% Rule”. This rule prevented most employees from claiming a tax deduction for their personal after-tax superannuation contributions.
To claim a deduction, the standard requirements that existed under the old rules must also be satisfied as follows:
- Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 must meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more that 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75 . Older tax payers are ineligible.
- Minors – If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.
- Compying Fund – The contribution must be made to a complying superannuation fund.
- Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form before you lodge your tax return in respect of that financial year.
Note that the maximum deduction that you can claim is $25,000. This is the amount of the concessional contributions cap. As well as your after-tax contributions, included in the $25,000 cap are:
- Employer contributions (including the compulsory 9.5% Superannuation Guarantee (SG) and salary sacrifice), and
- Certain amounts transferred from a foreign superannuation fund to an Australian superannuation fund (this won’t affect most taxpayers).
Fo example, if you earned $50,000 for the year from your job, and your employer contributed $4,750, then in effect the maximum amount you could contribute and claim as a deduction would be $20,250 ($25,000 cap, minus $4,750).
https://www.ato.gov.au/forms/notice-of-intent-to-claim-or-vary-a-deduction-for-personal-super-contributions/ Posted on March 15, 2018 by Accounts - Superannuation
This section details why, even in spite of recent unfavorable changes, contribution to superannuation is still so popular.
Tax Concessions
Superannuation is a concessionally taxed environment. This was highlighted in early 2017, when the Government released its Tax Expenditiurs Statement which stated that in total superannuation tax concessions cost the Government $38.85 billion in revenue in the previous financial year. These tax concessions which make superannution so attractive as an investment include:
CONCESSIONAL TAXATION OF EARNINGS
Superannuation earnings (such as interest, dividends, rent etc.) are taxed at 15% when your account is in accumulation mode (i.e. not in pension mode). These earnings are txax-free when your account is in pension mode. This concessional taxation cost the Government $16.85 billion in foregone revenue in 2015/2016. By contrast, investment earnings on assets (such as shares,property, term deposits etc.) held outside of superannuation are taxed at your marginal tax rate.
Note that your tax liability outside of superannuation may be further reduced by tax offsets such as those for low-income earners and pensioners.
CONCESSIONAL TAXATION OF CAPITAL GAINS
Capital gains made by superannuation funds are likewise taxed at 15% when your account is in accumulation mode. Where a CGT asset supports a pension, any capital gain made when those assets are sold is tax-free. On the other hand, if the CGT asset was held by one of the following entities it would be taxed as follows:
- Individual – marginal tax rate
- Company – 30% (or 27.5% for a Small Business Entity)
- Trust – marginal tax rate of individual.
The tax on a capital gain made by your superannuation is reduced to 10% (a 33% discount) where the asset has been held for 12 months or more. Although this is a lesser discount than the 50% discount available to trusts and individuals, this is negated by the base CGT superannuation taxation reate being so low at 15%.
Cut Your Income Tax
TAX DEDUCTION FOR CONCESSIONAL CONTRIBUTIONS
Subject to age limits, from 1 Jly 2017 almost all individuals can now claim a tax deduction for their personal concessional (after-tax) contributions that they make to superannuation. Before this date, most employees were unable to do this.
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