SUPERANNUATION SUPERANNUATION CONTRIBUTIONS CONTENTS Page 1. Introduction To Superannuation Contributions... 2 2. Employees Include Directors... 2 3. Superannuation Minimum Contribution... 2 4. Superannuation Minimum Contribution Percentage... 3 5. Ordinary Time Earnings... 3 6. Exclusions From Ordinary Time Earnings... 3 7. Quarterly Payments... 4 8. Choice Of Superannuation Fund... 4 9. Awards Or Employment Agreements... 4 10. Superannuation Concessional Contributions Limit... 5 11. Salary Sacrifice... 5 12. Superannuation Deduction... 5 13. Superannuation Self-Employed Persons... 5 14. Non Concessional Contributions... 5 15. Superannuation Guarantee Charge... 6 16. Superannuation Tax Deduction... 6 17. Superannuation Fund Taxation... 6 18. Superannuation Contributions Tax To Double To 30% For Incomes Above $300,000... 6 19. Superannuation Co-Contributions... 7 20. Professional Advice... 7 ADDENDUMS 026-005A - Standard Choice Form... 8 Page 1
SUPERANNUATION SUPERANNUATION CONTRIBUTIONS 1. Introduction To Superannuation Contributions There are a number of different components to the operation of the superannuation contribution rules in Australia. These are as follows: Superannuation minimum contribution which applies to virtually all employees. Superannuation concessional limits which can apply to employees, entitled to the superannuation minimum contribution and to self employed persons. Superannuation concessional limits which can apply to persons under 70. (After 70, employees have to work more than 40 hours in paid employment, over a 30 day period in the 12 months, to be able to have superannuation contributions made for that employee). From 1 st July 2013, age limit will be completely removed for contributions. Superannuation for self-employed persons. Superannuation non concessional limits for which a tax deduction is not claimed. 2. Employees Include Directors Company directors are included in the superannuation scheme and an employer company therefore has to pay the superannuation minimum contribution based on director's fees that have been paid to the company's directors. 3. Superannuation Minimum Contribution Superannuation minimum contribution is required to be paid by employers, for all employees except for: Staff who are aged 70 years and over. (Please note that the government changed the law with royal assent granted on the 29 th March 2012 that the superannuation guarantee age limit of 70 will be abolished from 1 st July 2013). Employees who earn less than $450 in each month throughout the relevant income year. Page 2
Employees under 18 years of age, not working full time (less than 30 hours per week). Persons paid to do work of a private or domestic nature for less than 30 hours per week. 4. Superannuation Minimum Contribution Percentage The contribution to be made is 9% of the employee's ordinary time earnings. The government has passed new legislation which received royal assent on the 29 th March 2012 that the superannuation guarantee rate will gradually increase from 9% to 12% between 1 st July 2013 and 1 st July 2019. The phasing in of the new contribution rates will be: Increasing the superannuation guarantee rate from 9% to 12% - Year Rate (%) 2013/14 9.25% 2014/15 9.5% 2015/16 10% 2016/17 10.5% 2017/18 11% 2018/19 11.5% 2019/20 12% 5. Ordinary Time Earnings The contribution is based on the employee s ordinary time earnings. Ordinary time earnings include: earnings in respect of ordinary hours worked over-award payments casual loadings commissions allowances paid leave overtime payments (when stipulated as being part of ordinary hours worked) lump termination payments accrued annual leave long service leave directors fees sick pay 6. Exclusions From Ordinary Time Earnings Ordinary earnings do not include overtime payments, except for overtime stipulated as being part of ordinary hours worked. Page 3
7. Quarterly Payments Superannuation minimum contribution payments have to be made at least quarterly. The quarterly cut-off dates are: Period 1st July to 30th September 1st October to 31st December 1st January to 31st March 1st April to 30th June Due Date For Payment 28th October 28th January 28th April 28th July 8. Choice Of Superannuation Fund An employer must offer a choice of superannuation funds to an employee unless you make superannuation contributions for that employee under: an Australian Workplace Agreement (AWA) or Pre-Reform AWA; or a State Industrial Award or a Preserved State Agreement. If you have eligible employees, you must provide them with a standard choice form within 28 days of them commencing employment. Your employee can select a complying superannuation fund to receive their superannuation guarantee contributions. If your employee does not choose a fund, you must make the superannuation guarantee contributions for that employee into the fund you have identified as your default fund. Refer to Addendum 026-005A Standard Choice Form. Choice of a superannuation fund applies to superannuation guarantee contributions only. If you pay superannuation contributions of more than 9% for an employee, the additional contributions can be paid to the fund chosen by the employee or another complying fund. You need to maintain records that show you have met your choice of superannuation fund obligations. This includes: details of employees who are not eligible to choose a super fund records confirming that the employer fund meets requirements records showing that the standard choice form has been provided to all eligible employees written information the employee provides when they nominate their chose fund If you do not meet your choice of superannuation fund obligations, you may be liable for the "choice shortfall". This is part of the superannuation guarantee charge and is the penalty you have to pay if you do not meet your obligations. This shortfall is about 25% of the contributions and is limited to $500 for a notice period per employee. 9. Awards Or Employment Agreements If, in the Award or Employment Agreement under which you engage your employees, the superannuation contribution is set at a higher amount than 9%, this is the amount that would have to be paid to the trustees of the superannuation fund each quarter. Page 4
10. Superannuation Concessional Contributions Limit Higher tax deductible amounts can be contributed as superannuation by the employer or as an employee salary sacrifice based on the employee's age as follows: Age 2011/12 2012/13 Maximum Deduction Maximum Deduction Under 50 $25,000 $25,000 50 and Over $50,000 $25,000 11. Salary Sacrifice An employee can enter into a written agreement with their employer for a salary sacrifice arrangement to take effect. Whereby an amount, in excess of the superannuation minimum contribution or the superannuation contribution required under an award or employment agreement up to the concessional contribution limit for that employee, is given up by the employee and is utilised as a superannuation contribution. Salary sacrifice contracts should be entered into on a prospective basis. This means that, if the salary sacrifice is to apply for the next financial year, the salary sacrifice contract should be finalised prior to the end of the current financial year. 12. Superannuation Deduction All contributions made to complying superannuation funds are tax deductible to the employer and are exempt from Fringe Benefits Tax, however where they exceed the concessional limits, penalty rates of tax apply for the beneficiary of the superannuation contribution. 13. Superannuation Self-Employed Persons Self-employed persons can obtain a superannuation deduction on the same basis as that adopted for employees. Age 2011/12 2012/13 Maximum Deduction Maximum Deduction Under 50 $25,000 $25,000 50 and Over $50,000 $25,000 A self-employed person can make superannuation tax deductible contributions, up to the maximum limit, up to 75 years of age. 14. Non Concessional Contributions A member of a superannuation fund can make additional contributions of up to $150,000 per year or $450,000 over 3 years, which are not tax deductible. These are called non-concessional contributions. Page 5
15. Superannuation Guarantee Charge If the following takes place: you do not make the superannuation minimum contribution by the quarterly deadline dates you do not offer choice of fund to eligible employees within 28 days you do not action an eligible employee s choice within 2 months You will need to lodge a superannuation guarantee statement, pay the superannuation guarantee charge and lodge a superannuation guarantee statement by the 14th day of the second month following the end of the relevant quarter. This means that you must the superannuation guarantee charge at the same time as lodging the superannuation guarantee statement. The disadvantage of paying the superannuation guarantee charge is that the charge is not tax deductible. You will also be required to pay interest and an administration fee to the Australian Taxation Office over and above the amount of superannuation guarantee charge. The due dates for payment of any superannuation guarantee charges and lodgement of statement are: Period 1st July to 30th September 1st October to 31st December 1st January to 31st March 1st April to 30th June Due Date For Payment & Lodgement Of Statement 14th November 14th February 14th May 14th August 16. Superannuation Tax Deduction To gain a tax deduction, in the current financial year, for superannuation contributions to a complying superannuation fund, you will need to make the contribution payment by 30 th June. If you make the payment after 30 th June, but prior to 28 th July, you can claim the superannuation contribution payments in the following financial year. 17. Superannuation Fund Taxation The superannuation fund is liable to pay taxation, at a rate of 15%, on all taxable contributions made to the superannuation fund, provided the fund is a complying superannuation fund. If the superannuation fund is a non-complying fund, then the contributions are taxed at the rate of 45%. The superannuation fund does not pay any tax on non-concessional contributions (refer to Section 14). 18. Superannuation Contributions Tax To Double To 30% For Incomes Above $300,000 From 1 st July 2012, individuals with income greater than $300,000 will have the tax on their concessional contributions increased from 15% to 30%. Page 6
19. Superannuation Co-Contributions The Australian government currently provides lower income earners a superannuation cocontribution. To access the superannuation co-contribution, the taxpayer must have total income of equal to or less than the lower income threshold ($30,342). This entitles the taxpayer to a maximum superannuation co-contribution amount. If the taxpayer s income is between the lower and higher income threshold, then the entitlement is calculated subject to the pro rata reduction rate. The pro rata reduction rate is the amount by which the superannuation co-contribution entitlement amount reduces as the taxpayer moves from the lower income threshold amount to the high income threshold amount. The taxpayer is not entitled to superannuation co-contributions once their total income reaches the higher income threshold. Year Lower Income Threshold Higher Income Threshold Taxpayer s Contribution Entitlement for Every $1 2011/12 $31,920 $61,920 $1 (up to the taxpayer s maximum entitlement) Maximum Entitlement $1,000 (however, this is reduced by 3.333 cents for every dollar that the taxpayer s total income, less allowable business deductions, is over $31,900 up to $61,920) The government announced from its 2012/13 Federal Budget that there will be changes to the superannuation co-contribution scheme. Year Maximum Entitlement Matching Rate Lower Income Threshold Higher Income Threshold 2012/13 $500 50% $31,920 $46,920 The 2012/13 rates are not yet law as the budget has not yet been passed. 20. Professional Advice Superannuation is a complicated area and it is recommended that you obtain professional accounting advice. Page 7
026-005A - Standard Choice Form Addendum A Choice of superannuation fund Standard choice form Give this form to your employee after you have Part A: Employer to complete completed Part A. 1 Employer name 2 Employer superannuation guarantee contributions will be made to the following fund: Fund name Superannuation product identification number (if applicable) For the product disclosure statement for this fund (if applicable) Fund website Phone 3 Employer superannuation guarantee contributions have previously been made to: (if different to above) If the employer fund has not changed please write as above in fund name box below. Fund name Superannuation product identification number (if applicable) Fund website 4 Employer contributions: Superannuation contributions are currently made at a higher level than the required 9% If Yes, superannuation contributions will continue at this higher level if the employee chooses a fund other than the fund named in part A question 2 Phone Note that this statement does not alter an employer's legal obligations (if any) relating to future payments. Part B: Employee to complete ONLY IF MAKING A CHOICE 1 I request that all future superannuation guarantee contributions be made to: Yes Yes No No My employer's previous superannuation fund named in part A question 3 My own choice of fund Go to question 4 below. Complete questions 2, 3 and 4 below. 2 Your chosen fund details: Fund name Membership No. (if applicable) Account name Fund Australian business number (ABN) (if applicable) Superannuation product identification number (if applicable) Phone Page 8
3 I have attached: a letter from the trustee stating that this is a complying fund and (for a self managed superannuation fund) a copy of documentation from the Tax Office confirming the fund is regulated written evidence from the fund they will accept contributions from my employer, and details about how my employer can make contributions to this fund. 4 Employee name Employee No. Date Day Month Year Signature Return this form to your employer. Do not send this form to the Tax Office or to your superannuation fund. Day Month Year Day Month Year Part C: Employer only Date accepted Processed Page 9
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