Superannuation guarantee salary sacrifice integrity measures have now been tabled by the Federal Government by way of an Exposure Draft. The ‘Treasury Legislation Amendment (Improving Accountability and Member Outcomes) Bill 2017: superannuation guarantee (salary sacrifice integrity measures)’ proposes amendments to ensure that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s superannuation guarantee (SG) obligations.
The laws will apply to quarters beginning on or after 1 July 2018.
Background
Currently, salary sacrificed amounts can count towards employer contributions that reduce an employer’s charge percentage. In addition, employers can calculate SG obligations on (lower) post salary sacrifice amounts unless precluded by an industrial award or employment contract that requires SG to be determined on some other amount (i.e. gross package, pre salary sacrifice).
Proposed amendments
The draft Bill proposes amendment to ensure that amounts that an employee salary sacrifices to superannuation do not:
- reduce an employer’s SG charge; or
- form part of any late contributions an employer makes that are eligible to be offset against the SG charge.
The proposed amendments distinguish between the mandatory and salary sacrificed components of an employer contribution, so that only mandatory contributions — i.e. a minimum of 9.5 per cent of ordinary time earnings (OTE) or higher amount specified in a workplace agreement/award — reduce the SG charge.
Note – Employers will (from 1 July 2018) be required to include salary sacrificed amounts in the OTE base.
SG entitlements will be calculated on the pre-salary sacrifice base. As individual superannuation guarantee shortfalls for an employee are calculated on the quarterly salary or wages base, the pre-salary sacrifice base will be the sum of:
- the total salary and wages paid by the employer to the employee for the quarter (noting that salary sacrificed amounts do not form part of an employee’s salary or wages); and
- any contributions made in the quarter under a salary sacrifice agreement.
Example (refer Example 1.1 of the Explanatory Memorandum draft Bill)
Pablo has quarterly OTE of $15,000 which would ordinarily generate an entitlement to $1,425 in SG contributions ($15,000 x 9.5 per cent).
He salary sacrifices $1,000 a quarter, expecting his superannuation contributions to rise to $2,425 for that quarter.
However, his employer uses the sacrificed amount ($1,000) to satisfy part of the employer’s SG obligation, and only makes a total contribution of $1,425 (consisting of the employee’s $1,000 salary sacrificed amount and $425 employer mandatory contribution).
Under proposed s. 23(2) of the SGA Act, sacrificed OTE contributions will not reduce the charge percentage. Therefore, the charge percentage would be reduced by 2.83 per cent ($425 / $15,000 x 100). As the employer is required to contribute 9.5 per cent, they must contribute an additional 6.67 per cent to meet their SG obligations.
The employer’s contribution of $425 creates a shortfall of $1,000 (6.67% x $15,000), which is the amount of the employee’s salary sacrificed amount.
Under proposed s. 23(2), sacrificed OTE or sacrificed salary and wages contributions will not reduce the charge percentage.
Pablo’s employer will need to contribute $2,425 in total (comprised of $1,425 mandatory employer contributions and $1,000 employee salary sacrificed amount) to avoid a shortfall under s. 19 and imposition of the SG charge.