Employees run the risk of exceeding their concessional contribution caps if they receive payments under the Government’s new superannuation guarantee amnesty.
Under the law implementing the amnesty, which was passed late last month, employers will have six months to correct super guarantee shortfalls without incurring penalties.
The amnesty applies to super guarantee shortfalls going back to July 1992 up until the quarter ending 1 January 2018. It does not apply to shortfalls after 1 January 2018, when the amnesty was announced.
Employees will receive the SG shortfall amount plus nominal interest.
One possible outcome of this is that people who already make large concessional contributions may beach the $25,000 cap if they receive shortfall payments
The legislation anticipates this and includes measures to mitigate the impact of a breach. But it is not straightforward.
In some cases, employers will make the shortfall payments to the Australian Taxation Office, which will pass them on to fund members. If an employee exceeds the concessional contribution cap as a result of the ATO making contributions on their behalf, the tax office can make a determination on its own initiative to disregard the contribution when calculating the cap.
Where an employer makes a shortfall payment directly to their employee’s super fund the employee must apply to the ATO to make a determination to disregard the beach. In such cases the ATO can exercise its discretion.
People who are concerned that they may breach their cap will need to keep an eye out for any shortfall contributions and be clear about whether they have directly from the employer or indirectly, via the ATO.
Another feature of the amnesty is that shortfall contributions will be not be counted towards an employee’s income or contributions for the purposes of calculating the contribution tax rate for high income earners. Contributions are taxed at 30 per cent where an individual’s income exceeds $250,000.
Employers will need to work out if they have an issue with SG underpayments, whether they qualify for the amnesty, how they will structure repayments, what deductions they are entitled to under the amnesty and whether their employees will encounter concessional contribution cap issues as a result of receiving payments under the amnesty.
The Assistant Minister for Superannuation, Jane Hume, says that since the amnesty was announced in 2018, more than 7000 employers have disclosed SG underpayments. She says she expects a similar number to report underpayments over the six-month period of the amnesty.
If employers do not participate in the amnesty and underpayments are detected, they face a minimum 100 per cent penalty on top of the shortfall.
The amnesty is part of a number of measures designed to deal with SG non-compliance, including prison sentences for non-compliant employers and greater tax office powers.
To meet the conditions of the amnesty, employers must pay an employee’s full entitlement, including any shortfall amounts plus nominal interest.
Employers that have difficulty making the payments by the due date can negotiate a payment plan with the ATO. If they fail to pay or fail to make arrangements to pay, they will lose the benefits of the amnesty.