In the 2023-24 Budget the Federal Government announced its intention to move to a situation where compulsory super contributions must be made at the same time as wages are paid: so-called “payday super”. The aim is this will apply to all employers from 1 July 2026. We reported on this proposal in Superannuation Newsletter 17.
Currently, compulsory superannuation guarantee contributions (SG contributions) relating to wages and salary paid in a particular quarter are required to be paid to super funds by employers no later than the 28th day after the end of the quarter. So, super contributions relating to wages paid in the quarter ended 31 December 2023 will be required to be paid to the employees’ super funds no later than 28 January 2024. Failure to pay super contributions by the due date results in an employer becoming liable to super guarantee charge (“SG charge”), which is not tax deductible, and possibly other penalties.
Earlier payment of super is expected to ultimately improve retirement incomes from super funds significantly. At the same time, the widespread implementation of Single Touch Payroll offers the potential for the ATO to detect non-payment of super contributions much sooner than at present. The ATO has noted that businesses often enter liquidation or bankruptcy before the non-payment is identified, and estimates that as at 28 February 2022 $1.1 billion of super guarantee charge debt was subject to insolvency and unlikely to ever be recovered.
The Treasury Department has released a consultation paper, Securing Australians’ Superannuation: Budget 2023-24, which seeks comment on how this proposal might be practically implemented.
Data matching
From 2023 the ATO will invest in creating a new unified database which will match Single Touch Payroll data from employers and Member Account Transaction data from superannuation funds. This is intended to provide a single source showing the near real time recorded super guarantee position of employers and employees, to enable the ATO to identify instances and patterns of late or underpayment of super guarantee. The Federal Government will also set up unpaid SG recovery targets for the ATO, to be reported on an annual basis.
Definition of “Payday”
The consultation paper suggests that there are two models that could be used. An ‘employer payment’ model that would impose the requirement on the employer to make payment of the SG contributions on the day that wages and salary is made or a ‘due date’ model that requires contributions to be received by the superannuation fund within a certain number of days following ‘payday’. ‘Payday’ would capture every time a payment with an ordinary times earnings (“OTE”) component is made to an employee. Employee SG contributions will be based on the OTE paid to the employee on the payday.
Updating the Super Guarantee Charge
The current quarterly system would be updated to ensure that employees who receive contributions late should always be compensated for forgone earnings, while employers should not be unduly penalised for circumstances outside of their control or for small administrative errors. These changes could include amendments to the rate of nominal interest and the size of the administration fee in a payday super model. Also, the ATO could be granted some flexibility to remit or reduce the SG charge or extend the due date under discrete circumstances where the employer is unable to meet the SG due date due to circumstances beyond their control.
Under the employer payment model, the SG charge could be based upon a requirement that the employer make the payment of an SG contribution on payday. Where a payment is not made on payday, an employer would become liable to pay the SG charge from this date. This would require new reporting and data mechanisms, and potentially the use of real-time payment platforms.
Under the due date model the current model could be retained in which a liability to SG charge arises if super contributions are not with a fund by a specified due date, being a certain number of days after the payday. The consultation paper suggests that, using legacy systems, a feasible due date for super contributions to reach funds would be between 8 to 13 days after payday. This could be reduced to less than 3 days using real-time payment technology.
Compliance mechanisms
If the ATO identifies that an employee’s superannuation contributions were not with the fund, in full, by the due date or paid on payday, the first step would be for the ATO to contact the employer through a ‘nudge’ to encourage rectification of any underpayment. Where a contribution continues to be unpaid, the ATO will investigate and contact the employer again to inform them of their liability to pay the SG charge by issuing an SG charge assessment. As currently, the SG charge assessment would detail the amount of SG charge owing to the ATO. Once that assessment becomes due and payable, general interest charge will then accrue on any unpaid SG shortfall amounts.
Rather than issuing SG charge assessments as soon as the debt accrues, the ATO will complete regular, scheduled ‘reconciliations’ where they issue all SG charge assessments that have accrued in the preceding period. The frequency of reconciliations is yet to be determined.
Currently the ATO has limited discretion to remit the SG charge. Under the new system, the ATO might be granted more flexibility to amend or exempt application of the SG charge in cases where an employer cannot meet its SG obligations due to unforeseeable circumstances that are beyond their control. This might include natural disasters or where a new employee has not provided fund details.
Current arrangements include permitting an employee a choice of super fund, the use of a default fund where no fund is chosen, and the “stapling” of a fund to an employee to avoid employees having multiple funds. Currently, employers are required to offer new employees the opportunity to choose their fund. If no choice is made, the employer must check with the ATO if the employee has an existing ‘stapled’ fund. If there is no stapled fund, the employer can create an account with their ‘default’ fund for the employee. A recent review has shown that the current process creates an administrative burden for employers during onboarding new employees, and the ATO intends to introduce a more efficient procedure, including a new digital ATO service that employees and employers can use to confirm the right super fund details.
The role of SMSFs
Member Account Transaction data from super funds which the ATO intends to use to detect underpaid super is only generated by APRA regulated funds. SMSFs do not provide this data, and the member information contained in the SMSF annual return is not sufficiently detailed to allow the ATO to match super payments to be reported in Single Touch Payroll with super contributions received by the fund. The consultation paper raises the question of whether there should be any change to the reporting framework for SMSFs, but it is unlikely that any useful change would be feasible, given the small-scale nature of SMSFs.
Response by Joint Accounting Bodies
Chartered Accountants Australia and New Zealand, CPA Australia, the Institute of Public Accountants, the SMSF Association, Financial Advice Association Australia and The Tax Institute have lodged a detailed 30 page submission in response to the consultation paper.
Please contact your Nexia advisor is you would like any more information on these proposed changes.
