Tax

Superannuation

Superannuation is a payment made by employers to a superannuation fund or Retirement savings account (RSA) of an employee. These payments are accrued over your working life, with the intention that the amount earned will allow you to support yourself following retirement.

However, individuals are not required to take their super as a lump sum, pension or combination when they retire. Instead, benefits can remain within the superannuation system indefinitely. This change applies retrospectively from 10 May 2006.

The Commonwealth Superannuation Guarantee (Administration) Act 1992 obligates Australian employers to make adequate contributions to the Superannuation fund or Retirement savings account (RSA) of all eligible employees.

Choice of superannuation fund

From 1 July 2005, certain employees will have the right to choose which superannuation fund or retirement savings account will receive their superannuation guarantee contributions. This is known as choice of superannuation fund.

From 1 July 2006, employees who work for a corporation and had their superannuation contributions paid under a state award will be able to choose a fund. Previously these employees could not choose a fund under the Australian Government's choice of superannuation fund law. These employees are now covered by the Federal workplace relations system under an agreement called a 'notional agreement preserving state awards'.

Employer obligations

As an employer, you have superannuation obligations to your staff. As a general rule, the superannuation guarantee legislation requires you to provide superannuation contributions for your staff as a percentage of their earnings base.

Quarterly superannuation guarantee took effect from 1 July 2003. From this date employers need to:

• calculate an amount equal to 9% of each of their eligible employees' earnings (Generally eligible employees are those who are paid at least $450 per month)
• pay this amount to a complying superannuation provider at least every quarter
• keep a record of all contributions made

If you currently make more frequent contributions due to the conditions of employees fund, an award obligation, a workplace agreement or through personal choice, you should continue do to so.

You are also required to report in writing to your employees the details of contributions you have made to their superannuation funds. This must occur at least once every quarter and should note the amount contributed the name of fund and, if known, the employee's account number.

From 1 July 2006, if you are a corporation who was paying superannuation contributions under a state award you will have to offer your employees a choice of superannuation fund. These awards are now treated as a 'notional agreement preserving state awards' under the Work Choices reforms.

Employee tax file numbers

Employers must respect the privacy of their employees who quote their Tax file number (TFN). You should pass on your employees' TFN when you make a contribution to their superannuation provider.

If you are asked by an employee's super fund to contact the employee about 'opting out' of using their TFNs for surcharge purposes, forward a copy of the document to the employee and ask them to contact the fund if they do not want to use their TFN for surcharge purposes.

Tax deductions

As an employer, you can claim tax deductions for superannuation contributions you make for your employees. Employer contributions to complying superannuation funds and RSAs for eligible employees are deductible up to certain limits. The limits are based on your employee's age. The age and associated deduction limit for the financial year 2005-06 are:

• under 35 - $14,603
• 35 to 49 - $40,560
• 50 and over - $100,587

For example, if you have an employee who is 38 years old, you can get deductions up to, but not exceeding, $40,560.

Record keeping

You will need to keep a record of when and how you reported superannuation contributions to your employees, as well as the amounts contributed.

Special reporting requirements apply to superannuation payments made as fringe benefits or salary sacrifice.

For a guide on employers' Superannuation obligations, refer to the Superannuation for employer's link on the Tax office website.

For key Superannuation information, including reporting and lodgement dates refer to the Key superannuation information link on the Tax office website.