Employer guide for reportable employer superannuation contributions

Transcription

1 Page 1 of 15 Employer guide for reportable employer superannuation contributions In the Federal Budget the government announced future changes to super. These changes, if passed by parliament, will change the information on this page. For a summary of these changes, refer to Changes to super. 1. About this guide As an employer, this guide will help you to work out how much of the super contributions you make for your employees are reportable employer superannuation contributions and how to keep appropriate records of those contributions. Reportable employer superannuation contributions are salary sacrifice or extra super contributions you make for an employee. Super guarantee contributions or contributions you make under a collectively negotiated industrial agreement are not reportable employer super contributions. Reportable employer superannuation contributions can affect your employees' tax liability and their access to a wide range of government benefits. This guide will also help you to work out: if the extra employer contributions are employee influenced which of an employee earnings you should use when calculating your compulsory contributions for that employee what to do if you make employer contributions in excess of your compulsory contributions for administrative simplicity or where you can show that the employee did not, or could not, influence the extra contributions you made for them. Some technical terms in this guide may be new to you. They are shown in bold when first used, and are explained in the list of definitions. 2. Paying super 2.1 Reporting super you pay for your employees For the and all future years, if you make super contributions under an effective salary sacrifice arrangement or extra super contributions to a super fund for an employee, you may need to report those contributions on your employee's payment summary. These contributions are called reportable employer superannuation contributions. What are reportable employer superannuation contributions? What are reportable employer superannuation contributions? Contributions made under a salary sacrifice agreement. Additional amounts paid to an employee's super fund (for example, an annual bonus paid to super). What are not reportable employer superannuation contributions? All super guarantee contributions. Compulsory superannuation contributions required by the governing rules of a super fund or required by a state or territory law. An employee negotiating for increased superannuation contributions as a part of their salary package (for example, under individual employment contracts). Employer superannuation contributions made under a collectively negotiated industrial agreement. Reportable employer superannuation contributions are not included in your employee's assessable income. However: you must report them to us as part of your payment summary reporting

2 Page 2 of 15 your employee must report them to us in their income tax return. Reportable employer superannuation contributions affect a range of government entitlements and obligations for individuals. There are new payment summaries to be used by employers for the year and onwards. The payment summaries have a label where the reportable employer superannuation contributions are to be recorded. This label is not to be used to record the compulsory employer superannuation that must be paid to employees, such as superannuation guarantee. You must keep records in enough detail to: report each employee's reportable employer superannuation contributions in your payroll, reporting and record keeping systems provide accurate information to your employees if they ask about their reportable employer superannuation contributions. 2.2 Deciding if you are an employer For the purposes of reportable employer superannuation contributions, you are an employer if you employ workers under a verbal or written employment contract on either a: full-time basis part-time basis, or casual basis. You may also be considered an employer if you make payments to a person under a contract that is wholly or mainly for the labour of the person. If you are considered an employer under the superannuation guarantee law, you will be considered an employer for the purposes of reportable employer superannuation contributions. To find out about employers and the superannuation guarantee see 'Superannuation guarantee obligations for employers' in Superannuation guarantee. For more information about: superannuation guarantee obligations, refer to Guide to superannuation for employers who is an employee, refer to the following superannuation guarantee rulings SGR 2005/1 Superannuation guarantee: who is an employee? SGR 2005/2 Superannuation guarantee: work arranged by intermediaries. 2.3 Does it matter when your employee started working for you? Employer superannuation contributions you make for an employee can be reportable employer superannuation contributions regardless of when any of the following occurred: you employed your employee you negotiated the industrial agreement under which your employee is paid you entered into a salary sacrifice agreement or similar arrangement with your employee. 2.4 What is the reporting period? You must report all the reportable employer superannuation contributions you make for an employee on their payment summary for the income year (1 July to 30 June). Reportable employer superannuation contributions are to be reported for the income year that the contribution relates to. This could be a different year to the one in which they are actually received by the super fund. This applies to super contributions made for the and all future income years. 3. What are reportable employer superannuation contributions? Reportable employer superannuation contributions are those contributions you make for an employee where all of the following apply: your employee influenced the rate or amount of super you contribute for them

3 Page 3 of 15 the contributions are additional to the compulsory contributions you must make under any of the following: the superannuation guarantee law an industrial agreement the trust deed or governing rules of a super fund a federal, state or territory law. Remember compulsory employer superannuation payments, such as superannuation guarantee, are not reportable employer superannuation contributions. 3.1 What does 'capacity to influence' mean? If you have an employee who enters into an arrangement with you to contribute more super than you are required to, then that employee will be considered to have 'capacity to influence' the amount of contributions made. The employee's capacity to influence will be shown by: your relationship with the employee the involvement of your employee in the negotiations concerning the terms of any industrial agreement governing the super contributions the size of the amount contributed for your employee relative to the compulsory contributions you are required to make the super contribution arrangements you have in place for other employees any non-arm's length dealings. Generally, an employee will not be taken to have the capacity to influence the amount of super contributions you make on their behalf where they simply vote for a collective agreement, or are part of a group that negotiates a collective agreement with you. Your employee will be taken to have influenced the amount of the contributions you make on their behalf where they can directly negotiate, or have an option to directly negotiate, an employer super contribution in excess of the compulsory contributions. Tula is an employee of MGK Pty Ltd. Tula's employment conditions are governed by an industrial agreement that was negotiated between Tula and the other employees of MGK Pty Ltd. The other employees are Tula's husband Tony, and their adult children, Michael and Rena. There was no external involvement in the negotiations of the agreement and it was not made at arm's length. The agreement requires MGK Pty Ltd to contribute an amount equal to 15% of their employees' salary to super. As the employer contributions made on behalf of Tula and her fellow employees are required under the terms of an agreement that was not negotiated at arms' length, Tula had capacity to influence the contributions. MGK Pty Ltd must report the difference between the minimum amount required to be made to meet their obligations under the superannuation guarantee law and the amount paid under the industrial agreement. This is because the contributions made on behalf of Tula and her fellow employees are: required under the terms of an agreement that was not negotiated at arm's length, and contributions that Tula had capacity to influence. Under the superannuation guarantee law, the charge percentage is 9% of the ordinary time earnings (OTE) of an employee. If Tula's OTE are $60,000, then the amount of reportable employer superannuation contributions is 6% (the difference between 9% and the amount contributed, 15%) of $60,000 or $3, What about salary sacrifice arrangements? Under an effective salary sacrifice arrangement, your employee agrees that you will make extra super contributions for them in return for a reduced amount of salary or wages. These extra contributions are reportable employer superannuation contributions. An effective salary sacrifice arrangement is an agreement where an employee agrees to forego part of their future salary or wages in return for you providing them with benefits of a similar value. You cannot enter into an effective salary sacrifice arrangement to substitute benefits for salary or wages your employee has already earned. Employees can receive a range of benefits under an effective salary sacrifice arrangement. Generally, benefits provided to employees are subject to fringe benefits tax (FBT) and are already reported on the employee's payment summary. These are called reportable fringe benefits. However, super contributions are not benefits that are subject to the fringe

4 Page 4 of 15 benefits rules and previously were not reported on an employee's payment summary. For more information about reportable fringe benefits and what benefits need to be reported, refer to Fringe benefits tax: a guide for employers (NAT 1054). The new requirements to report the extra employer super contributions do not change how salary sacrifice arrangements or employer super contributions are treated. It is simply that extra contributions you make for an employee must be reported on your employee's payment summary along with any reportable fringe benefits. Under Jill's industrial agreement, her employer must contribute 10% of her OTE to a super fund. Jill has a long standing agreement with her employer to salary sacrifice an extra $10,000 of her salary to the same super fund. Only the $10,000 additional portion of the employer contributions are reportable employer superannuation contributions that Jill's employer must report on her payment summary. This is because the following applies: Jill directly influenced the amount of extra super her employer pays for her, and the contributions reduce Jill's assessable income. 3.3 Are reportable employer superannuation contributions just the salary sacrifice amount? If you make extra employer contributions to a super fund for an employee, generally the extra amount will be a reportable employer superannuation contribution. If you can show that it was a compulsory contribution or it was not influenced by your employee, part or all of the contribution will not be a reportable employer superannuation contribution. Mike pays his employees a bonus each year if they meet their performance targets. Under a long standing agreement, one of Mike's employees has elected to have Mike pay the amount of any bonus into their super fund. If a bonus is payable and Mike pays the bonus into his employee's super fund, the amount will be a reportable employer superannuation contribution. For more information about salary sacrificing and super, refer to Employers superannuation - home. 4. What are not reportable employer superannuation contributions? 4.1 Contributions that are not reportable employer superannuation contributions If you can show that your employee did not, and could not, influence the amount of super you contributed for them, they are not reportable employer superannuation contributions. Compulsory contributions that you must make for your employee are not reportable employer superannuation contributions. This includes contributions you must make under: a collectively negotiated industrial agreement the superannuation guarantee law federal, state or territory law, or the trust deed or governing rules of a super fund. Under the superannuation guarantee law, Anthony's employer contributes 9% of his OTE to his industry super fund.

5 Page 5 of 15 His employer does not have to report these payments on Anthony's payment summary because they are not reportable employer superannuation contributions. Remember compulsory employer superannuation payments, such as superannuation guarantee, are not reportable employer superannuation contributions. 4.2 Contributions from your employee's after-tax income If your employee makes super contributions from their after-tax (net) income, these contributions are not reportable employer superannuation contributions. This is the case even if you deduct the amounts from your employee's takehome pay and forward the amount to their super fund on their behalf. Alla is a business operator who employs three workers. Jo, one of her employees, has asked Alla to pay $50 a fortnight to her super fund from her after-tax pay so she can increase her super savings. Although Jo has directly influenced the amount of super Alla pays on her behalf, the additional $50 Alla pays is not a reportable employer superannuation contribution because it comes from Jo's after-tax income. These amounts are not employer super contributions - they are Jo's personal (member) contributions and are part of Jo's assessable income. 4.3 Contributions you make under industrial agreements The super contributions you make for an employee are not reportable employer superannuation contributions if all of the following apply: you make the contributions to meet the terms of an industrial agreement, and the employee did not, or could not, directly influence the terms of the agreement. Amanda operates a business and employs 20 workers. Under their industrial agreement, Amanda must contribute 10% of her employees' OTE to a super fund. Apart from voting on the agreement, Amanda's employees have no influence over the amount of super she contributes. This means that the super contributions Amanda makes for her workers are not reportable employer superannuation contributions. 4.4 Contributions you make under an individual employment contract If you have employees on individual employment contracts, they will generally be considered to have capacity to influence amounts contributed for them that are greater than the minimum required to meet your super obligations. For example, contributions that are greater than the minimum amount required under the superannuation guarantee law or a fund's trust deed. This is the case unless you can show that either: the extra contributions are made for administrative simplicity, or a documented policy is in place that does not allow an employee to influence the contributions you make on their behalf. For more information, see Making extra contributions where you can show your employee had no influence. Adnan is an employee of Johnson Pty Ltd. While negotiating his individual common law employment contract,

6 Page 6 of 15 Johnson Pty Ltd agrees to pay super contributions for Adnan at the rate of 12% of his salary. Johnson Pty Ltd has no policy regarding the employer contributions it pays for its employees. It allows employees to negotiate any rate of employer contribution they wish in excess of 9% of their OTE in exchange for a reduced salary. Adnan and the other employees of Johnson Pty have contributions made on their behalf at varying rates. Johnson Pty Ltd must record the extra contributions made for Adnan as reportable employer superannuation contributions. Adnan's OTE are the same as his salary. The amount recorded is 3% of Adnan's salary as this is the amount that is additional to the minimum contributions Johnson Pty Ltd must make under the superannuation guarantee law. 4.5 Contributions you make under a fund's rules or under a law If you have to make contributions for an employee based on an amount set by a law or their super fund's rules or trust deed, those contributions are not reportable employer superannuation contributions. This is the case even if the amount you must contribute is greater than the minimum amount you must contribute under the superannuation guarantee law. 4.6 Contributions you make to a defined benefit fund The employer super contributions you make to a defined benefit fund for your employees with defined benefit interests in the fund can vary depending on the fund. The amount you must contribute for defined benefit members is usually decided by the fund's actuary, not your employee. These contributions are made by you to a defined benefit fund to meet the liabilities of the defined benefit members as a whole. As a result, the contributions you make to a defined benefit fund for these members would generally not be reportable employer superannuation contributions where the contribution is not allocated to a particular member. However, if your employee can elect for you to make extra contributions to their account from their pre-tax income, these extra amounts will be reportable employer superannuation contributions. If your employee also has an accumulation account in the defined benefit fund (or any other fund) and you make extra contributions to that account for your employee, these will be reportable employer superannuation contributions. Indira works for a large company and is a member of a defined benefit super fund. Indira accrues benefits that increase with her length of service. The company makes contributions to the fund according to the fund rules. These employer contributions are worked out by the fund's actuary. The amount the company must contribute to the fund, as decided by the fund's actuary, is not a reportable employer superannuation contribution as Indira has no influence over, or choice about, this amount. Indira can choose to contribute between 1% and 5% extra from her pre-tax income. Indira completes an election form with her employer to contribute an extra 5%. This amount goes to Indira's account within the defined benefit fund. This extra amount is a reportable employer superannuation contribution and must be reported on Indira's payment summary. 4.7 Making extra payments for administrative simplicity Some super contributions you make are not reportable employer superannuation contributions, even if they are additional to your compulsory contribution amount. This is the case for an employee when you can show both of the following: you made the extra contributions for administrative, payroll simplicity or other reasons, and your employee had no influence, and could not have had influence, over whether or not you made the additional contributions. Vangie is a business operator who employs several full-time and casual employees. Some of Vangie's casual employees rarely earn more than $450 in any given calendar month, which means Vangie does not have to make any contributions on their behalf under the superannuation guarantee law. Vangie's payroll system automatically calculates super contributions for her employees at the rate of 9% of the OTE she pays them, even if they earn less than $450 in any calendar month. This means Vangie is making

7 Page 7 of 15 super contributions for some employees even though she doesn't have to. She does this because it is easier to do so under her payroll system. Vangie's employees have no choice about how much super Vangie contributes on their behalf, so the contributions she makes are not reportable employer superannuation contributions. 4.8 Making extra contributions where you can show your employee had no influence There may be circumstances where you are paying more than is required because of an employer policy or similar arrangements. This may be the case with employees who are employed under either: collectively negotiated industrial agreements, or single employment contracts. Clarke Pty Ltd employs a range of different types of workers on individual contracts and collective industrial agreements. Clarke Pty Ltd has always paid employer contributions at the minimum rate of 12% of salary regardless of whether the employee is on an individual contract or a collectively negotiated agreement. Employees are not able to negotiate an employer contribution rate lower than 12%. The company policy is long standing and is documented in Clarke Pty Ltd's record keeping system. No employee is receiving less than 12% employer contribution support. Clarke Pty Ltd must document how it worked out that the employees did not influence the contributions. If employees do have the power to vary their employer contribution rate, the amounts over any compulsory contributions made will be reportable employer superannuation contributions. 5. Calculating compulsory employer super contributions 5.1 What salary or OTE amount should you use? Reportable employer superannuation contributions do not change how you currently work out salary or OTE for your employees. You work out your compulsory contributions for your employees as you normally do to meet your legal obligations under, for example: the superannuation guarantee law an industrial agreement that specifies what salary to use. You may base your compulsory contributions on a salary that is slightly higher than OTE. This may be because of the terms of the industrial agreement under which the compulsory contributions for your employees are worked out. This also may be due to administrative simplicity. For more information, see Making extra payments for administrative simplicity. Alistair employs Jess under an industrial agreement. Under the terms of the industrial agreement, Alistair must contribute to super an amount equal to 9% of each employee's total remuneration. Where an employee has worked overtime, their total remuneration may be greater than the OTE used under the superannuation guarantee law. Jess has OTE of $59,000. However, at the end of the year Jess has actually received $60,000 as she has also earned $1,000 from occasional and irregular overtime. Alistair must contribute 9% of $60,000 to super for Jess under the industrial agreement. Even though this amount is greater than the minimum amount that Alistair would need to contribute under the superannuation guarantee law, Jess has no reportable employer superannuation contributions. The compulsory contributions for Jess are calculated under the industrial agreement. Jess is not able to influence the amount of these

8 Page 8 of 15 contributions. For more information about how to work out the amount of super you must pay under the superannuation guarantee law, refer to Guide to superannuation for employers. 5.2 How do you work out compulsory contributions if there is no defined salary? You will still need to identify the amount of compulsory contributions and work out if any amount you contribute in excess of these for an employee are reportable employer superannuation contributions. Some employees, for example commission-based sales staff, may not have a defined salary. You may make one payment for the total amount of super you contribute that incorporates extra super contributions. This means you will need to calculate what portion of the total employer contribution is a reportable employer superannuation contribution. Rob operates a real estate business and hires Marcus. Marcus is unsure of how much he will make in any given year, but he wants to save more than the minimum for his retirement. Marcus requests that 20% of his commission earnings be paid to a super fund on his behalf. Rob pays Marcus monthly: 20% of his commission earnings are sent to his super fund 80% are paid to him less pay as you go (PAYG) withholding. At the end of the income year Marcus's sales commissions total $100,000. Rob has made employer super contributions totalling $20,000 and has paid Marcus $80,000 (less PAYG withholding). Rob will need to work out which part of the super contribution Marcus influences so he can report this amount as Marcus's reportable employer superannuation contributions. Rob does this by working out the contributions he would have made for Marcus had he not asked him to contribute more than the minimum required under the superannuation guarantee law. To work this out Rob goes through the following steps: Step 1 Marcus' commission earnings of $100,000 is multiplied by 100/109: $100,000 x 100/109 = $91,743 The minimum amount Rob needs to contribute for Marcus in order to meet his obligations under the superannuation guarantee law is: Step 2 $91,743 x 9% = $8,257. Rob then subtracts the $8,257 from the total employer super contributions actually made. Step 3 $20,000 - $8,257 = $11,743. Rob will report the extra $11,743 as reportable employer superannuation contributions and the $80,000 as gross payments on Marcus's payment summary. Rob's payroll system calculates salary and superannuation guarantee contributions in this way for all employees. Rob will keep records of how he calculated the reportable employer superannuation contributions. 6. Record keeping and payment summaries 6.1 Records you must keep You must keep records to prove whether or not your employee influenced the super contributions you made on their behalf. These records include:

9 Page 9 of 15 information on how you calculated reportable employer superannuation contributions information on how you calculated the employee-influenced portion of the total employer contribution information on how you calculated your employee's salary or OTE copies of relevant salary sacrifice agreements copies of relevant industrial agreements. You must keep your records: for five years after they are prepared, obtained or the transactions are completed, whichever occurs last in English, or in a form we can access and understand in order to work out the tax you are liable to pay. For more information about record keeping, refer to Record keeping essentials. Electronic record keeping If you choose to keep your business records electronically, they must be in a form we can readily access and understand. For more information about keeping electronic records, refer to Taxation Ruling TR 2005/9 Income tax: record keeping - electronic records. 6.2 Payment summaries New payment summaries are available for the income year. They include a label to show reportable employer superannuation contributions. Your new reporting requirements are explained in Reporting requirements - changes for income year. You must include all reportable employer superannuation contributions you make for an employee on their payment summary. Anyone with a reportable employer superannuation contribution amount must be issued with a payment summary. Compulsory employer superannuation contributions, such as superannuation guarantee, are not recorded on the payment summary. The only superannuation contributions that need to be recorded on a payment summary are reportable employer superannuation contributions. If you make reportable employer superannuation contributions to an employee, you must provide them with a payment summary even if you have not paid them salary or wages. If the payment of reportable employer superannuation contributions is made by one of your associates, a payment summary is still required to be issued. The payment summary must be issued by your associate. Sharon is employed by Bailey Ltd, however Bailey Ltd has insufficient funds to pay Sharon the $10,000 in salary she is due to be paid. Bailey Ltd's directors arrange for an associated business to make the payment. In addition, Sharon and Bailey Ltd have an effective salary sacrifice arrangement whereby all her salary is paid into a super fund. The directors of the associated business Tran Ltd contribute the amount to a super fund on Sharon's behalf. As the payer, Tran Ltd, is responsible for working out the amount of reportable employer superannuation contributions. Tran Ltd must supply Sharon with a payment summary showing the reportable employer superannuation contribution amount. They must also give an annual report to the Australian Taxation Office (ATO) by 14 August after the income year in which contributions were made that shows the reportable employer superannuation contributions made for Sharon. For more information about payment summaries, refer to PAYG payment summary - individual nonbusiness (NAT 0046).

10 Page 10 of 15 Remember compulsory employer superannuation payments, such as superannuation guarantee, are not reportable employer superannuation contributions and do not need to be recorded on an employee's payment summary. 6.3 Correcting errors on payment summaries You can correct a payment summary you have already issued if you have: forgotten to include the reportable employer superannuation contributions, reported compulsory employer superannuation contributions, such as superannuation guarantee as reportable employer superannuation contributions, or included an incorrect amount of reportable employer superannuation contributions. You must complete a new payment summary and mark the 'amending a payment summary' box with an 'X'. When you complete an amended payment summary, you must: complete the 'Reportable employer superannuation contributions' label with the appropriate amount complete the payee, payment and payer information as it was on the original payment summary send it to us to the applicable address on the PAYG payment summary statement give a copy to your employee. If your employee has already lodged their income tax return, they must request an amendment to their reportable employer superannuation contributions amount. We recommend they keep a copy of the amended payment summary for their records. 7. How your employees are affected Although you must include all reportable employer superannuation contributions you make for an employee on their payment summary, you do not include these contributions in your employee's gross income. Reportable employer superannuation contributions are not included in your employee's assessable income. However, these contributions are included in the income tests for the following benefits and obligations we administer: Medicare levy surcharge threshold calculation Medicare levy surcharge (lump sum payment in arrears) tax offset all dependant tax offsets senior Australians tax offset pensioner tax offset mature age worker tax offset spouse super contributions tax offset entrepreneurs' tax offset super co-contributions deduction for personal super contributions Higher Education Loan Program (HELP) and Student Financial Supplement Scheme (SFSS) repayments tax concessions for certain employee share schemes deductions for non-commercial losses. The new law also affects a range of Centrelink and Child Support benefits and obligations. For more information about how these changes affect Centrelink and Child Support, visit the: Centrelink website at Child Support Agency website at What your employees need to do Your employees must copy the reportable employer superannuation contribution amounts from their payment summary to their income tax return. We will calculate their entitlements by including the reportable employer superannuation contribution in certain income tests. From 1 July 2009, your employees may need to review their entitlement to the range of benefits and obligations listed above to see if they are still eligible for these entitlements. Your employees may need to provide new withholding declarations to ensure that amounts of tax withheld from their

11 Page 11 of 15 salary or wages and other income during the income year best meet their expected tax liability, taking into account the changes to income tests. As reportable employer superannuation contributions may affect employee obligations and entitlements, we recommend you discuss these contributions with your employees. For more information for your employee see Guide for employees and self employed - Reportable super contributions - income tests. 7.2 s of how benefits and obligations are affected : dependent spouse tax offset Toni and Dana are in a de-facto relationship. Dana is on unpaid leave. Toni wants to claim the maximum dependent spouse tax offset for Dana in her income tax return. While Dana has no salary or wages income, her employer has made $10,000 in reportable employer superannuation contributions for her during the income year. As Dana had no other taxable income or fringe benefit amounts for the income year, her taxable income is $0, but her adjusted taxable income (ATI) is $10,000. This is because reportable employer superannuation contributions are included in the income test. Therefore, Toni is not eligible to claim the maximum dependent spouse tax offset as Dana's ATI is more than the dependent spouse income threshold of $9,254 for the income year : Medicare levy surcharge Meng has a taxable income of $70,000 and reportable employer superannuation contributions of $30,000. Lee, Meng's spouse, has a taxable income of $60,000 and reportable employer superannuation contributions of $10,000. This means their total family income is $170,000. Neither Meng nor Lee has private patient hospital insurance. The couple's family threshold for the surcharge is $146,000. If their reportable employer superannuation contributions had not been taken into account, their combined income would have been $130,000 and they would not have had to pay the Medicare levy surcharge. However, with their reportable employer superannuation contributions, their family income exceeds the surcharge threshold and they are both liable to pay the Medicare levy surcharge. This means: Meng has to pay a surcharge of $700; that is, 1% of $70,000 Lee has to pay a surcharge of $600; that is, 1% of $60,000. Although reportable employer superannuation contributions are included in calculating the Medicare levy surcharge threshold, the actual surcharge is only applied to taxable income and any applicable reportable fringe benefits : super co-contributions Raji's assessable income is $50,000. She has reportable fringe benefits of $10,000 and her employer makes reportable employer superannuation contributions of $20,000 on her behalf. Raji also makes a personal contribution of $1,000 from her after-tax income to her super fund. For the income year, Raji's total income for the purposes of calculating her co-contribution is the sum of her assessable income, reportable fringe benefits and reportable employer superannuation contributions, less any business deductions. Because Raji has no deductions for the income year, this means her total income for the income year is $80,000; that is, $50,000 + $10,000 + $20,000 = $80,000. For the income year, the co-contributions higher income threshold is $61,920. Therefore, Raji is not entitled to a super co-contribution from the government. However, if Raji had no reportable employer superannuation contributions, her assessable income would have been $60,000 and she may have been eligible for a co-contribution : deduction for personal super contributions Ted is an employee and has entered into a salary sacrifice arrangement with his employer. They have agreed that his employer will contribute his entire salary of $30,000 to a super fund on his behalf in return for Ted receiving no salary. Therefore, Ted's salary is $0. Ted's employer also pays a $2,700 super contribution for him based on his pre-salary sacrifice salary. For the income year, Ted has no salary or wages. Ted's employer is still required to report a $30,000 reportable employer

12 Page 12 of 15 superannuation contribution on his payment summary. In the income year, Ted also receives $40,000 in assessable income from a trust distribution. Ted also makes a personal contribution of $5,000 to his super fund. Ted plans to claim $5,000 as a deduction for the personal contribution to super in his income tax return so that his taxable income will be reduced. Ted needs to calculate whether he meets the 10% maximum earnings as an employee test for deducting personal super contributions. His total income for the test is the sum of his: assessable income reportable fringe benefits, and reportable employer superannuation contributions. For Ted this is $70,000 - that is, $40,000 from the trust distribution plus $30,000 reportable employer superannuation contributions. The reportable employer superannuation contributions of $30,000 are from activities as an employee and are greater than 10% of $70,000. Therefore, Ted is not entitled to claim a tax deduction for any personal contributions he makes. 8. Definitions Accumulation funds This is a fund to which you may contribute regular payments. On retirement, your employee receives the accumulated contributions you have made, plus any additional contributions they may have made, plus interest (such as less management fees, taxes). Adjusted taxable income (ATI) This is the income test used to calculate eligibility for the dependency tax offsets. Centrelink also uses this test to calculate, for example, family benefits. From 1 July 2009, this test will include reportable employer superannuation contributions. Assessable income This is a person's ordinary income and statutory income before deductions are taken into account. Reportable employer superannuation contributions do not form part of a person's assessable income, but they are added to a number of income tests that use expanded definitions of income. Compulsory contributions Compulsory contributions are employer super contributions you must make to meet your obligations under any of the following: the superannuation guarantee law an industrial agreement the trust deed or governing rules of a super fund a federal, state or territory law. Defined benefit fund This is a super fund with at least one defined benefit member. A defined benefit member is a member whose entitlement to super benefits from the fund is defined by either: a reference to salary a specified amount, or specified conversion factors. Contributions into the fund for the defined benefit members are not paid into the fund or accumulated in the fund for any individual member. They are paid into and accumulated in the fund in the form of an aggregate amount. Employer contribution This is a contribution you make for your employee to a super fund. These are deductible (subject to certain rules) to you and are assessable contributions to the super fund.

13 Page 13 of 15 Employer contributions are not assessable income to your employee. This means that they are not: included in the gross payments on a payment summary subject to PAYG withholding tax. Higher Education Loan Program (HELP) From 1 January 2005, HELP replaced the Higher Education Contribution Scheme (HECS). If a payee already has an accumulated HECS debt, the debt becomes an accumulated HELP debt on 1 June Industrial agreement Industrial agreement means either: an Australian law an award an order a determination an industrial instrument in force under an Australian law. Income tests Many government benefits paid by us or Centrelink are income tested. The income tests vary depending on the entitlement. Generally, an income test will consist of two or more aspects. The first aspect is a threshold that is an income amount at which the entitlement or concession is reduced or withdrawn. The second aspect is the items that are included in the income test. Reportable employer superannuation contributions are not be taxed directly, but they are included in certain income tests. This could mean an individual is not entitled to a tax offset or a government entitlement. Non-arm's length dealings An indicator of a non-arm's length arrangement will be where you and your employee are related and negotiate employer contributions in excess of what other employers would ordinarily have contributed for them. Ordinary time earnings (OTE) OTE are generally what your employees earn in respect of their ordinary hours of work, including: over-award payments commissions bonuses allowances paid leave. Personal deductible super contributions These are the personal super contributions that a person claims as an income tax deduction on their income tax return if they meet certain eligibility criteria. As a general rule, employees are not entitled to claim an income tax deduction for personal super contributions in an income year where more than 10% of their income is attributable to activities as an employee. Personal super contribution These are personal contributions your employee makes into their super fund from their after-tax (net) income. Reportable employer superannuation contributions This is the amount of employer super contributions influenced, or able to be influenced, by your employee that are: above your compulsory contributions (for example, superannuation guarantee)

14 Page 14 of 15 not included in your employee's assessable income. Reportable fringe benefits amount If you provide fringe benefits with a total taxable value of more than $2,000 to an employee in an FBT year (1 April to 31 March), you must report the grossed-up taxable value of the benefits on the employee's payment summary for the corresponding income year (1 July to 30 June). These are called reportable fringe benefits. Reportable super contributions Reportable super contributions are the sum of reportable employer superannuation contributions and personal deductible super contributions. Salary or wages Under the superannuation guarantee law, salary or wages generally includes any payment you make to a person in return for either: work performed services provided labour under a contract wholly or principally for the labour of the person. It can include commissions. Student Financial Supplement Scheme (SFSS) The SFSS is a voluntary loan scheme to help tertiary students cover their expenses while studying. Five years after the loan is taken out, we take responsibility for collecting the balance of the outstanding loan. The loan becomes an accumulated Financial Supplement debt. On 31 December 2003, the scheme closed and no new loans have been issued. There are no changes to the collection of existing Financial Supplement debt. Super contribution This is a contribution made to a super fund or a retirement savings account (RSA) to provide super benefits for a person. This is regardless of whether the benefits are payable to the person's dependants if the person dies before or after becoming entitled to receive the benefits. Superannuation guarantee law This is the Superannuation Guarantee (Administration) Act 1992 which sets out the minimum amount of employer super contributions you must make for an eligible employee. The minimum amount of superannuation guarantee contributions you are required to make for an eligible employee is currently 9% of the employee's OTE. Super fund A super fund for the purposes of this guide includes: a super fund a retirement savings account (RSA). Retirement savings accounts are offered by approved financial institutions. Just like complying super funds, they accept super contributions for account holders, and provide benefits upon retirement or death. 9. More information To order a printed copy go to or phone the Publications Distribution Service on For more information phone our

15 Page 15 of 15 superannuation information line on , or contact our small business information line on between 8.00am and 6.00pm, Monday to Friday. If you do not speak English well and need help from the ATO, phone the Translating and Interpreting Service on for help with your call. If you are calling from overseas, phone If you are deaf, or have a hearing or speech impairment, phone the ATO through the National Relay Service (NRS) on the numbers listed below: TTY users, phone and ask for the ATO number you need Speak and Listen (speech-to-speech relay) users, phone and ask for the ATO number you need internet relay users, connect to the NRS on and ask for the ATO number you need. Last Modified: Thursday, 28 October 2010 Our commitment to you We are committed to providing you with accurate, consistent and clear information to help you understand your rights and entitlements and meet your obligations. If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take. Some of the information on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information. If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice. Copyright Commonwealth of Australia This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. Requests for further authorisation should be directed to the Commonwealth Copyright Administration, Copyright Law Branch, Attorney-General s Department, Robert Garran Offices, National Circuit, BARTON ACT 2600 or posted at