Bills Digest No. 160 2001-02
Superannuation Guarantee Charge Amendment Bill 2002
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Superannuation
Guarantee Charge Amendment Bill 2002
Date Introduced:
16 May 2002
House:
House of Representatives
Portfolio:
Treasury
Commencement: The
later of 1 July 2003 and the date on which the Act receives the Royal
Assent.
Purpose
To amend the Superannuation Guarantee
Charge Act 1992 to enable the Superannuation Guarantee Charge to be
imposed on a quarterly basis.
The Superannuation Guarantee (SG) Scheme, administered
by the Australian Taxation Office (ATO), requires all employers to provide
a prescribed minimum level of superannuation support for each of their
employees, subject to limited exemptions. Employers who fail to provide
the prescribed level of minimum support are liable to a SG Charge equivalent
to the amount of the superannuation not contributed (the 'shortfall')
plus an interest component and an administrative charge. Employer contributions
to a complying superannuation fund (or retirement savings account) for
the benefit of employees are generally tax deductible, but the SG Charge
is not.
The legislation governing the SG Scheme is the Superannuation
Guarantee Charge Act 1992 and the Superannuation Guarantee (Administration)
Act 1992. Both Acts commenced operation on 1 July 1992.
The required minimum level of superannuation support
commenced in 1992 at 3 per cent of the employee's earnings. Over the last
10 years, this rate has increased towards its legislated maximum. The
required minimum level of superannuation support for 2001-02 is 8 per
cent of the employee's earnings. This will increase to 9 per cent from
1 July 2002 and subsequent years.
The level of superannuation support that an employer
provides in respect of each employee is measured on a quarterly contribution
period basis, however, SG contributions only have to be made annually.
To avoid incurring a SG liability, the required SG contributions must
be made by 28 July in respect of the SG liabilities that have accrued
over the previous financial year. This means that an employer must calculate
its quarterly SG liability for every quarter year commencing 1 July, 1
October, 1 January or 1 April. The contributions do not have to be paid
to a superannuation fund until the following 28 July in respect of the
liabilities for the four quarters.
The scheme is administered on a self-assessment basis.
Generally, an employer who has a SG shortfall is required to lodge a SG
statement with the ATO together with payment of the SG Charge by 14 August
after the end of the financial year. Employers are required to maintain
adequate records to demonstrate their compliance with the requirements
of the scheme.
Section 55 of the Constitution provides that an Act which
imposes liability to pay a tax shall deal only with the imposition of
the tax and any provision in that Act dealing with any other matter shall
be of no effect.
The SG Scheme is implemented by the following two statutes
under the taxation power in section 51(ii) of the Constitution:
- the Superannuation Guarantee Charge Act 1992, which imposes
a SG Charge on any SG shortfall of an employer in a year, and
- the Superannuation Guarantee (Administration) Act 1992, which
provides the legislative framework for the assessment and payment of
the SG Charge.
The Superannuation Guarantee Charge Act 1992 incorporates,
and is to be read as one with, the Superannuation Guarantee (Administration)
Act 1992.
Report of the Senate Select Committee on
Superannuation and Financial Services, Enforcement of the Superannuation
Guarantee Charge
On 27 April 2001, the Senate Select Committee on Superannuation
and Financial Services released its report titled Enforcement of the
Superannuation Guarantee Charge.(1) Chapter 4 of the Committee's
report examined the issues involved with the frequency and timeliness
of SG contributions. The Committee heard that the SG requirement for annual
payment caused a number of problems including:
- potential loss of investment earnings for employees
- potential loss of entitlements in the event of insolvency
- increased number of lost members
- impact on disability and income protection insurance
- less frequent contributions by employers can commercially disadvantage
employers that make on time and correct SG contributions.(2)
The Committee also:
- received considerable support from superannuation industry stakeholders
for more frequent payment of SG contributions
- noted that a Private Member's Bill had been introduced to require
quarterly SG contributions, and
- noted that the then Assistant Treasurer and officers of the Australian
Taxation Office and the Department of the Treasury were examining the
feasibility of introducing quarterly SG contributions.
The Committee reported evidence received from the ATO
that 86 per cent of employers pay SG contributions quarterly, or more
frequently. The Committee also considered a range of options for more
frequent payment, including monthly and quarterly payment. After considering
the range of issues, the Committee made the following recommendation:
Recommendation 7
4.24. The Committee recommends that the requirement for compulsory
SG contributions by employers, where it is not currently monthly,
be varied to provide for quarterly payments.(3)
2001 Election: Coalition Promises on Superannuation
During the 2001 election campaign, the Government released
a paper titled A Better Superannuation System. This paper contained
the following proposal to introduce quarterly SG contributions:
Quarterly Superannuation Contributions by Employers
Australians can be confident that the vast majority
of businesses comply with their superannuation obligations. Approximately
85% of businesses currently make superannuation contributions quarterly
or more often, whilst others make superannuation contributions annually.
In order to ensure fairness between employees and
to encourage employers to make regular superannuation contributions,
the coalition will require all employers to make at least quarterly
superannuation contributions on behalf of their employees.
The measure will take effect from 1 July 2003.(4)
2002-03 Budget Announcement
The 2002-03 Budget provided further details about the
implementation of this proposal. The relevant extract from the Budget
follows.
A Better Superannuation System — quarterly
Superannuation Guarantee contributions
Revenue ($m)
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2002-03
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2003-04
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2004-05
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2005-06
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Australian Taxation Office
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-
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35.0
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5.0
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6.0
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Explanation
From 1 July 2003, employers will be required
to make Superannuation Guarantee (SG) contributions to a complying
superannuation fund or retirement savings account on behalf of their
eligible employees on at least a quarterly basis. Currently, employers
are only required to make SG contributions on an annual basis, although
most employers make contributions more frequently than this.
As part of a quarterly SG regime, the following will
also apply:
- for defaulting employers, the Superannuation Guarantee Charge (SGC)
will be imposed quarterly with a lower administration component and
the nominal interest component calculated from the beginning of the
relevant quarter;
- the earnings threshold that determines whether an employee is entitled
to SG will change from $450 per month to $1,350 per quarter;
- employers will be required to report to their employees the amount
and destination of SG contributions when contributions are made; and
- in order to assist employers make the transition to quarterly payments,
no administration or nominal interest components of the SGC will apply
to shortfalls arising within the first two quarters from 1 July 2003.(5)
As part of the 2002-03 Budget announcement, the Minister
for Revenue and Assistant Treasurer, Senator the Hon. Helen Coonan justified
changing the earnings threshold that determines whether an employee is
entitled to SG will change from $450 per month to $1350 per quarter in
the following terms:
The quarterly threshold should reduce the compliance
impact on business, particularly those with seasonal or casual workers
(e.g. rural and retail sectors). (6)
The earnings threshold is amended by the Taxation Laws
Amendment (Superannuation) Bill (No. 2) 2002. For a discussion of the
proposed amendment to the SG earnings threshold and other related issues
announced in the 2002-03 Budget, interested readers are referred to the
Bills Digest for Taxation Laws Amendment (Superannuation) Bill (No. 2)
2002.
The Association of Superannuation Funds of Australia
welcomed the move to require employers to make more regular quarterly
payments of super contributions.(7)
The ALP members of the Senate Select Committee on Superannuation
and Financial Services supported the recommendations in the report Enforcement
of the Superannuation Guarantee Charge, including the recommendation
to introduce quarterly SG contributions.
The Australian Democrats member of the Senate Select
Committee on Superannuation and Financial Services supported the recommendations
in the report Enforcement of the Superannuation Guarantee Charge,
including the recommendation to introduce quarterly SG contributions.
Separate Acts to comply with section 55 of
the Constitution
There is a single Explanatory Memorandum for both this
Bill and the Taxation Laws Amendment (Superannuation) Bill (No. 2) 2002.
Since the imposition of the SG Charge may amount to the
imposition of taxes, the amendment to the basis for calculating the SG
Charge requires separate legislation to comply with the requirements of
section 55, which was outlined in the Background to this Digest. For this
reason, the amendments to the Superannuation Guarantee Charge Act 1992
are contained in a stand-alone Bill.
Item 1 amends section 5 of the Superannuation
Guarantee Charge Act 1992 (the Act) to change the imposition
of any superannuation guarantee charge of an employer from a year to a
quarter. Section 6 of the Superannuation Guarantee (Administration)
Act 1992 defines quarter. This definition is being amended by item
14 of Taxation Laws Amendment Bill (No. 2) 2002.
Item 2 amends the Act to change the amount of
superannuation guarantee charge payable on a superannuation guarantee
shortfall of an employer from the amount of shortfall in a year, to an
amount of shortfall in a quarter.
Item 3 clarifies the application of the amendments
by stating that they apply to SG shortfalls made under the Superannuation
Guarantee (Administration) Act 1992 for quarters that commence on
or after 1 July 2003.
The proposal to require all SG contributions to be paid
on a quarterly basis has received broad support. It was proposed as a
Private Member's Bill during the 39th Parliament, was suggested
in hearings and in evidence to a Senate Inquiry, and was the unanimous
recommendation of that same Senate inquiry. The change will only affect
15 per cent of employers since 85 per cent of employers pay SG on at least
a quarterly basis. The Bill will enhance the investment earnings of employees'
superannuation, reduce the risk of potential loss of entitlements in the
event of insolvency, reduce the number of lost members, and enhance the
disability and income protection insurance of fund members.
Related issues, such as the proposed amendment to the
SG earnings threshold and other 2002-03 Budget announcements, are arguably,
not so salutary. Interested readers are referred to the Bills Digest for
Taxation Laws Amendment (Superannuation) Bill (No. 2) 2002.
- This report can be accessed in its entirety via the following link:
http://www.aph.gov.au/senate/committee/superfinan_ctte/sgc/SGC%20report.pdf
- Senate Select Committee on Superannuation and Financial Services,
Enforcement of the Superannuation Guarantee Charge, 27 April
2001, pp. 52–3.
- ibid., p. 57.
- Liberal Party of Australia, A Better Superannuation System,
November 2001, p. 9.
- The Hon. Peter Costello, MP, Treasurer, Budget Paper No. 2: Budget
Measures 2002-03, Canberra, 14 May 2002, pp.13–14.
- Senator the Hon. Helen Coonan, Minister for Revenue and Assistant
Treasurer, A Better Superannuation System - Quarterly Superannuation
Guarantee Contributions, Press Release C49/02, 14 May 2002.
- Association of Superannuation Funds of Australia, New Rule Means
Thousands Left Out Of Super, Press Release, 15 May 2002.
David Kehl
5 June 2002
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 2002
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