It seems like Superannuation Guarantee requirements are always changing. Just when you think you’ve got all the rules and eligibility criteria committed to memory, they evolve again. Today we’re discussing an important change to superannuation requirements that happened at the beginning of 2020, but it’s worth a reminder: Employers can no longer use money contributed by employees in salary sacrifice arrangements to meet or reduce their legal Superannuation Guarantee Contribution obligations.
Current Superannuation Guarantee legislation requires employers to contribute 10% of an employee’s base salary into their nominated super account. Prior to January 2020, employers could calculate this Superannuation Guarantee amount based on the reduced salary after any salary sacrifices. And because the Superannuation Act made no distinction between a contribution from salary sacrificing or an employer contribution, employers were also able to use employees’ salary-sacrifice super payments to meet their legal Superannuation Guarantee obligation.
This means that employees who believed they were boosting their retirement income by sacrificing part of their salary to pay extra on top of the compulsory amount paid by employers were inadvertently reducing their Superannuation Guarantee entitlements.
Prior to the introduction of this bill, employers typically calculated employees super guarantee contributions using one of three methods:
| Base salary | $60,000 |
| Salary Sacrifice | $10,000 |
| Taxable Salary | $50,000 |
| Employee Super Guarantee Contribution ($60,000 x 10%) | $6,000 |
Under this method, the salary sacrifice deduction is not considered when calculating the Super Guarantee Contribution.
| Base salary per quarter | $60,000 |
| Salary Sacrifice | $10,000 |
| Taxable Salary | $50,000 |
| Employee Super Guarantee Contribution ($50,000 x 10%) | $5,000 |
Under this method, the salary sacrifice amount is excluded from the Super Guarantee Contribution calculation and the final superannuation calculation is lower than Method 1.
| Base salary per quarter | $60,000 |
| Salary Sacrifice (Included in SGC calculation) | $10,000 |
| Taxable Salary | $50,000 |
| Super Contribution | $10,000 |
Under this method, the employee’s salary sacrifice amount is included by the employer as part of their Employee Super Guarantee Contribution and no additional employer superannuation contributions are paid.
This is where the big change comes in. The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, came into effect January 2020. With the introduction of this bill, the Superannuation Guarantee contribution will need to be calculated using the first method listed above only, based on the employee’s salary base.
Since January 1 2020, employers have been required to pay the minimum Superannuation Guarantee Contribution calculated on their employees’ base salary, including any salary sacrifice amount, into their super to avoid the super guarantee charge. It also prevents employers from using any salary sacrifice contributions made by employees to meet their minimum Superannuation Guarantee Contributions.
Reporting requirements also changed. If an employer makes super contributions under a salary sacrifice arrangement or makes extra super contributions to a super fund for an employee, these extra contributions may need to be reported on your employee’s payment summary.
If you’re interested in knowing more about Superannuation Guarantee Contributions or reporting requirements, speak to an expert Geelong accountant at The Hrkac Group. when it comes to minimising your taxation liabilities and maximising your income, our team of Geelong accountants at The Hrkac Group is there to help you with practical, effective advice.
Take control of your tax planning and minimisation needs by meeting with one of the business accounting specialists at The Hrkac Group. To make an appointment to meet one of our friendly team today, feel free to contact us via email or phone (03) 5224 2366.
