Chapter 1 Approved superannuation clearing house Outline of chapter 1.1 Schedule 1 to this Bill amends the Superannuation Guarantee (Administration) Act 1992 (SGAA), the Retirement Savings Accounts Act 1997 (RSAA) and the Superannuation Industry (Supervision) Act 1993 (SISA) to support the Government s 2008-09 Budget measure to provide a free superannuation clearing house service for small businesses. The measure is designed to reduce the cost to small businesses of complying with their superannuation obligations. Context of amendments 1.2 Under the Superannuation Guarantee (SG) arrangements, employers are required to pay a minimum level of superannuation contributions for the benefit of their eligible employees at least once a quarter to avoid liability to the SG charge. The minimum contribution level is 9 per cent of an employee s earnings base. 1.3 Some employers currently pay contributions in fulfilment of their SG obligations through a payroll provider or a superannuation clearing house. However, these contributions are only considered to have been made for SG purposes when they are paid into a complying superannuation fund. 1.4 The choice of fund rules require employers to provide their employees with a choice of superannuation fund. Employees are generally able to choose the fund into which their employer superannuation contributions are paid. Employers must provide a standard choice form to their new employees, and to their existing employees on request. Employees wishing to exercise choice of fund must complete the form with the required information and return it to their employer. An employee may also initiate the choice process by giving the employer written notice nominating a particular fund as their chosen fund. Employers must give effect to an exercise of choice by an employee within 2 months of receiving written notice from the employee. 1.5 Complying with the choice of fund rules, including the process of giving effect to an employee s exercise of choice and having to interact 1
with different superannuation funds, can impose costs and divert effort away from a business s core activities. Smaller businesses, with fewer resources at their disposal, are less likely to be able to absorb this cost and inconvenience without impacting on the operation of the business. 1.6 The amendments contained in Schedule 1 support the Government s 2008-09 Budget measure to provide a free superannuation clearing house service for small businesses to assist in meeting their superannuation obligations. Summary of new law 1.7 The amendments to the SGAA allow employers to meet their obligation to make compulsory superannuation contributions for the benefit of their employees by paying to an approved clearing house. 1.8 The amendments also extend the conditions under which contributions for the benefit of an employee are made in compliance with the choice of fund requirements to cover circumstances where contributions are made through an approved clearing house. 1.9 Amendments to the SISA and RSAA allow an employer to satisfy its obligation in relation to the prompt remittance of superannuation amounts deducted from an employee s salary or wages by making payments to an approved clearing house. Comparison of key features of new law and current law New law An employer is able to reduce its SG liability by making payments to an approved clearing house. A contribution to a fund by an employer for the benefit of an employee is also made in compliance with the choice of fund requirements if: the contribution is made through an approved clearing house; the employee has given the employer written notice choosing a fund; and the employer passed the written notice to the approved clearing house within 21 days of receiving it from the employee. Current law Where an employer makes contributions through a clearing house in fulfilment of its SG obligations, the contributions are only considered to have been made for SG purposes when they are paid into a complying superannuation fund or a retirement savings account (RSA). A contribution to a superannuation fund by an employer for the benefit of an employee is made in compliance with the choice of fund rules if the contribution is made to a chosen fund for the employee or, if there is no chosen fund, to an eligible choice fund for the employer. An employee can nominate a fund as their chosen fund by giving written notice to their employer. Contributions that are not made in compliance with the choice of fund requirements give rise to an SG shortfall for the employer and a resultant 2
An employer is able to discharge its obligation in respect of the prompt remittance of superannuation amounts deducted from an employee s salary or wages by paying them to an approved clearing house within 28 days of the end of the month in which the deduction is made. liability to the SG charge. Where an employer is authorised to deduct amounts from an employee s salary or wages for the purpose of payment to a superannuation fund or an RSA provider, the amounts must be paid to the trustee of the fund or RSA provider within 28 days of the end of the month in which the deduction is made. Detailed explanation of new law Superannuation guarantee contributions 1.10 Part 3 of the SGAA deals with the liability of employers to the SG charge. An employer commences each quarter with an SG charge percentage of 9 per cent (the minimum contribution level under the SG arrangements) in respect of each employee. An employer can reduce its SG charge percentage for a quarter under section 23 by making contributions to a complying superannuation fund or an RSA by the due date following the end of the quarter. Section 23A allows late payments (payments made after the due date for SG contributions) to a complying superannuation fund or an RSA to be offset against the SG charge. New section 23B provides that an employer who pays an amount to an approved clearing house for the benefit of an employee is taken to have paid the amount to a complying superannuation fund or an RSA for the purposes of sections 23 and 23A. [Schedule 1, item 3, section 23B] 1.11 Approved clearing house is defined in new subsection 79A(3) as meaning a body specified in the regulations for the purposes of that subsection. [Schedule 1, items 2 and 5, subsections 6(1) and 79A(3)] The choice of fund requirements 1.12 The choice of fund requirements are contained in Part 3A of the SGAA. A contribution to a fund by an employer for the benefit of an employee is made in compliance with the choice of fund requirements if the contribution is made to a chosen fund for the employee or, if there is no chosen fund, to an eligible choice fund for the employer. Contributions that are not made in compliance with the choice of fund requirements give rise to an SG shortfall for the employer under subsection 19(2A) and a resultant liability to the SG charge. 1.13 New subsection 32C(2B) provides that a contribution to a fund by an employer for the benefit of an employee is also made in compliance with the choice of fund requirements if: the contribution is made through 3
an approved clearing house; the employee has given the employer written notice choosing a fund in accordance with Division 4 (Choosing a fund); and the employer passed the written notice to the approved clearing house within 21 days of receiving it from the employee (and before or at the time of the contribution). A contribution made in accordance with new subsection 32C(2B) will not result in an SG shortfall for the employer under subsection 19(2A). [Schedule 1, item 4, subsection 32C(2B)] 1.14 Where a contribution by an employer to a fund through an approved clearing house is not made in accordance with subsection 32C(2B), the contribution can also comply with the choice of fund requirements provided it is made in accordance with the existing rules in Part 3A. In this context, new section 79A treats the contribution as having been made on the employer s behalf by the approved clearing house as the employer s agent. If the contribution is made in compliance with the choice of fund requirements, an SG shortfall will not arise. [Schedule 1, item 5, section 79A] Example 1.1 Example 1.2 Ace Crash Repairs (ACR) is a small business which makes superannuation contributions on behalf of its employees through an approved clearing house. ACR has recently taken on Mick as a new employee and he is given a standard choice form by ACR in compliance with its obligations under the choice of fund rules. Mick completes the choice form nominating XYZ superannuation fund as the fund into which his superannuation contributions are to be paid and returns the form to his employer. ACR passes the form on to the approved clearing house one week after receiving it from Mick. XYZ fund is a fund which meets the requirements for a chosen fund in Division 4 of the SGAA. As the conditions prescribed in subsection 32C(2B) are satisfied, contributions made by ACR for the benefit of Mick through the approved clearing house are made in compliance with the choice of fund requirements. ACR also makes contributions to the approved clearing house in respect of another of its employees, Kate. Because Kate has not chosen a fund, ACR has instructed the approved clearing house to make contributions on her behalf to ACR s default fund, ABC superannuation fund. The clearing house acts on these instructions and pays the contributions to ABC fund, which is an eligible choice fund. As the conditions set down in new subsection 32C(2B) are not satisfied (including because Kate has not chosen a fund), ACR cannot rely on 4
that provision in order to avoid an SG shortfall arising under subsection 19(2A). However, subsection 19(2A) also looks to the underlying contribution by ACR to ABC fund in determining whether an SG shortfall arises. As Kate has no chosen fund, and because ABC fund is an eligible choice fund, the contribution by ACR to ABC fund through the approved clearing house is made in compliance with the choice of fund requirements. Consequently, the contribution does not give rise to a shortfall under subsection 19(2A). 1.15 The above amendments do not affect an employer s obligations under the choice of fund rules to provide its employees with a standard choice form in the circumstances specified in Part 3A. Prompt remittance of amounts deducted from salary or wages of an employee 1.16 Where an employer is authorised to deduct amounts from an employee s salary or wages for the purpose of payment to a superannuation fund, the SISA requires that the amounts be paid to the trustee of the fund within 28 days after the end of the month in which the deduction is made. An equivalent requirement in respect of RSAs is contained in the RSAA. These Acts are amended to allow employers to satisfy this obligation by making payments to an approved clearing house (within the meaning of the SGAA). [Schedule 1, items 1 and 6, subsection 183(2) of the RSAA, subsection 64(2) of the SISA] Application 1.17 The amendments made by Schedule 1 apply to a contribution made to an approved clearing house on or after 1 July 2010. [Schedule 1, item 7] 5