It may not seem like an obvious thing to check, but knowing when your employer is due to pay your superannuation contribution could prevent you breaching your cap. This is because employers don’t necessarily need to pay your super in the financial year that you earned it. For some people, a delayed payment could push them over the contributions cap. Here’s what you need to know.
But first, some background. As many of you are aware, employers are required to pay a minimum of 9% of eligible employee’s ordinary times earnings (OTE) as a super contribution into a complying super fund, generally of the employees’ choice, or a retirement savings account. These payments are officially called the Super Guarantee (SG).
Employees eligible to receive SG are:
- aged between 18 and 69 years old;
- paid at least $450 before tax in salary or wages in a calendar month; and
- working full time, part time or casually.
There is a maximum contributions base for employees who earn over a certain amount each quarter. Employers are not required to pay superannuation on amounts above this base, which for 2011/12 is $43,820. For 2012/13, the limit increases to $45,750.
If an employee has an effective salary sacrifice arrangement with the employer, the sacrificed amount is an employer contribution, and therefore counts towards the SG obligation.
Deadlines
Employer contributions need to be made on at least a quarterly basis. For each quarter, the payment must be received by the superfund by the 28th day of the month following the end of the quarter that the contribution relates to. This means that for the quarter starting 1 April to 30 June, the payment cut-off date is 28 July. Fortnightly or monthly payments can also be made as long as the total amount owing for the quarter is paid by the cut-off date.
Late payment implications for the employer
Employer contributions that are not received by the cut-off date will attract interest (10% per annum on the outstanding amount) and penalty charges ($20 administration fee per employee per quarter), which are to be paid by the 28th of the next month. This is called the Super Guarantee Charge (SGC).
The employee’s SGC is based on salary and wages, which could be greater than the OTE that the SG is based on. Further, the employer is not eligible for the tax deduction that applies to employer contributions that are paid on time.
Late payment implications for the employee
Contributions made to a super fund are counted in the financial year that the super fund receives the payment. This means that contributions made for the June quarter 2012 may be received by the fund in July 2012, and would still meet the payment deadline. However, the contribution will be attributed to the 2012/13 financial year.
If the employee is making salary sacrifice contributions as well, missing the June 30 deadline can have significant implications for contributions caps, potentially unbeknownst to the employee.
This is best illustrated in an example:
In combination with an effective salary sacrifice arrangement, an employer contributed $25,000 to a 40-year old employee’s super fund for the quarter ending June 2011. The employer paid the contribution on 1 July 2011.
In June 2012, the employer contribution was received by the super fund on 30 June. Even though the June 2011 contribution was in reference to the 2011 financial year, it will be attributed to the 2012 financial year as it was received in July.
Now the employee will have an excess contributions issue since both contributions are deemed to be made in the 2012 financial year.
Avenues of appeal
The ATO has the power to treat the June 2011 payment in the 2011 financial year, however their discretion is based on special circumstances, and will not be exercised just because one of the following occurs:
- the employer’s liability to make super contributions accrued in a different financial year to when they were actually made;
- an amount salary sacrificed to super in one financial year was contributed by the employer to the super fund in another financial year;
- the employee hadn’t allowed for having a varying number of pays in a period. For example 53 weekly pays or 27 fortnightly pays in a year;
- a particular employer contribution was paid early or delayed in an unexpected way so that, for example, the employee benefited from 13-monthly or five-quarterly contributions in one year but 11-monthly or three-quarterly contributions in another;
- the employee didn’t know something about how the employer makes contributions for them;
- the concessional contributions cap was exceeded solely due to contributions the employer had to make.
However, whether an employer’s contributions often follow a regular ‘pattern’ or whether the employee can control the timing or amount of the employer’s contributions is relevant to determining if there are special circumstances. This consideration may be important if one or more contributions were made outside of the employer’s regular pattern and the employee has behaved in a particular way because they were aware of, and relied on, that pattern.
Dealing with the uncontrollable
While employees are unable to control the timing of super payments or when they are received by their fund, being aware of contributions caps, total concessional contributions payable and when past super payments have been made, will allow better management of contributions going forward.
Checking super statements and dates of when contributions have been received is one way to monitor contribution against the cap, and therefore the ability to reduce salary sacrifice arrangements accordingly.
If the employer fails to make obligated super payments within the required timeframe or is not paying enough, a query can be lodged with the ATO by calling 13 10 20 or via their website www.ato.gov.au.
For those aged 70 and over
These issues will become relevant for those aged 70 and over, as the SG age limit of 70 will be removed from 1 July 2013, and employers will be required to contribute to complying super funds of eligible employees regardless of age.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.
