Getting a Tax Deduction for Employer Superannuation Payments

Employers are eligible to a tax deduction for contributions made for employees to a complying superannuation fund.  The contributions are only deductible however in the year in which they are paid. To get the most from the deductions available, employers should make sure that the contributions are received by their employees superannuation funds before the 30th June.

Clearing House Trap

It is common for contributions to be made via a clearing house (including the Small Business Superannuation Clearing House that is managed by the tax office). These are a great way to ease the compliance burden where employees have different funds. It should be noted however the deduction cannot be claimed until the funds are actually received by the Superannuation Fund.  As a result care needs to be taken to ensure contributions are made with sufficient time to allow the clearing house to process them in time. Unfortunately the accrual of a superannuation liability or book entry is not enough to meet all the requirements to qualify for a deduction.

Employees turning 75?

For employees turning 75 years of age they will no longer be eligible to make contributions unless they are required to be contributed under particular industrial awards, determinations and agreements. The most common will be the 9.5% superannuation guarantee levy. All other contributions including salary sacrifice will no longer be permitted.

When an employee turns 75 the employers are required to make any contributions, other than those permitted post age 75, within 28 days of the end of the month in which the employee turns 75.

The Tax Man is Watching!

The payment of superannuation guarantee by employers is a constant compliance focus area for the tax office.  The tax office are constantly monitoring employers to be certain that they are paying their employee’s superannuation funds the correct amounts within the permitted time limits. It should be noted that the superannuation guarantee rate will progressively increase until it arrives at 12%, so employers need to make certain that they are making the correct payments each year.  Furthermore, Directors need to be aware that they can be held personally liable where their business has not met their superannuation obligations to their employees.

Another continuing compliance area of focus is workers being inaccurately classified as contractors rather than employees.  The tax office concern is that employers have been using contracting arrangements to avoid various employment obligations including superannuation. Just because someone portrays themselves to be an independent contractor does not make it so. The risk is that they could be deemed to be an employee for superannuation guarantee purposes leaving the employer with a bill for the unpaid super!

The difference between an employee and contractor is a subject for another post however if you are in any doubt please feel free to contact us

What Happens If I Don’t Pay on Time?

If you simply fail to make the payments to the super fund before the end of the financial year the deduction will be pushed into the next financial year. This simply means there will be a delay in you receiving the tax benefit.

If however you fail to meet the statutory obligation of having to pay employee contributions with 28 days of the end of each quarter or you short pay your employees super, including contractors deemed to be employees, you will be levied with the Superannuation Guarantee Charge (SGC).

Essentially the employer will be levied for the unpaid super, administration fee, interest and penalties for not meeting their obligations. If the additional penalties weren’t bad enough the SGC is not deductible. This can have a significant impact on the tax paid by an organisation and as such we strongly recommend that you ensure you meet your compliance obligations in this area.

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