A bill introduced to close a loophole used by some employers to reduce their super contributions to their employees has recently passed both houses of parliament on 22nd of October 2019 and signed this week (28th October 2019). The bill will come into effect on 1st January 2020.
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019, will prevent employers from counting any salary sacrifice contributions made by employees as part of the employer’s statutory Salary Sacrifice and Superannuation Guarantee Contributions (SGC) when meeting minimum superannuation payment obligations.
Prior to the introduction of this bill, employers typically calculated employees super guarantee contributions using one of three methods:
Method 1: Based on the base salary (before any salary sacrifice is deducted)
| Base salary per quarter | $25,000 |
| Salary Sacrifice | $2,500 |
| Taxable Salary | $22,500 |
| Superannuation (SGC) ($25,000 x 9.5%) | $2,375 |
Under this method, the salary sacrifice deduction is not considered when calculating the 9.5% SGC.
Method 2: Based on the taxable salary (after any salary sacrifice is deducted)
| Base salary per quarter | $25,000 |
| Salary Sacrifice | $2,500 |
| Taxable Salary | $22,500 |
| Superannuation ($22,500 x 9.5%) = | $2,137.50 |
Under this method, the salary sacrifice amount is excluded from the 9.5% SGC calculation and the final superannuation calculation is lower than Method 1.
Method 3: The salary sacrifice amount is considered as part of the superannuation guarantee contribution by the employer
| Base salary per quarter | $25,000 |
| Salary Sacrifice (Included in SGC calculation) | $2,500 |
| Taxable Salary | $22,500 |
Under this method, the employee’s salary sacrifice amount is included by the employer as part of their SGC and no additional employer superannuation contributions are paid.
With the introduction of this bill, Method 2 and Method 3 will no longer be acceptable. The superannuation guarantee contribution will need to be calculated using Method 1 only, based on the employee’s salary base.
Employers will not be allowed to factor in the post-salary sacrifice base or utilise the employee’s salary sacrifice super as part of their superannuation obligations.
Unsure if you’re meeting your superannuation contribution requirements?
Employment Innovations outsourced payroll service is supported by locally based processing partners who are experts in their field and always up to date with current legislation. If you have any concerns about how you are calculating SCG for your employees or would like to speak with a payroll partner then contact us today for a consultation.