how superannuation works
Generally, employers who pay employees $450 or more before tax in a calendar month are required to pay super on top of those wages. The current minimum is 9.5% of an employee’s ordinary time earnings. Super payments must go to a complying super fund, and most employees can choose their own fund. Changes for self-managed super funds (SMSF) commenced on 1 July 2017, and are designed to ensure the super system improves its flexibility, integrity, and sustainability. Contribution caps limit the total amount of contributions that can be made to a super fund in a financial year. Limits apply to both concessional (pre-tax) and non-concessional (post-tax) contributions.
Superannuation is used to assist Australians to accumulate money for an income in retirement. The employer contribution rate has been 9.5% since 1 July 2014, which will increase gradually by 0.5% on an annual basis from 2021 to 12% in 2025. An individual can withdraw funds from their superannuation fund if they meet a condition of release, for example, retirement, permanent incapacity, or a terminal medical condition.
SuperStream is the way businesses must pay employee superannuation guarantee contributions to super funds. The system electronically transmits money and information across the super system, between employers, super funds, service providers, and the ATO. The data is linked to the payment by a unique payment reference number.
SuperStream must be used by employers for payments into any type of superannuation fund. To do so, employers can use a payroll system that meets the SuperStream requirements, the employer super fund online system, or a super clearing house.
Superannuation payments must be made at least four times per year, by the quarterly due dates. If employers fail to pay on time, an additional superannuation guarantee charge may apply, which is not tax deductible.
On 24 May 2018 the Minister for Revenue and Financial Services announced a 12-month Superannuation Guarantee Amnesty. This one-off opportunity allows employers to self-correct past super guarantee non-compliance without penalty, and applies to previously undeclared shortfalls from 1 July 1992 to 21 March 2018.
Employers are still required to pay all employee entitlements, but they are not liable for the administration component or penalties that may apply. They may also be able to claim deductions for catch-up payments in the 12-month period.
changes to SMSF levy
The recent changes to the self-managed super funds will apply to:
- personal super contributions deductions
- low income super tax offset
- a transfer balance cap of $1.6 million for pension phase accounts
- spouse tax offset
- division 293 income threshold (reduced to $250,000)
- non-concessional (post-tax) contributions (cap lowered to $100,000 per annum)
- concessional (pre-tax) contributions (cap lowered to $25,000 per annum)
- carry forward concessional contributions of unused caps over five years
- retirement income streams
- anti-detriment deduction (now removed).
ATO’s website gives more details of the changes for self-managed super funds.
more articles about: guide to superannuation
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- super contributions caps
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- how much to pay and when
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