If you’re a small business with employees, it’s important to understand the rules about paying them superannuation.
Here are the main things you need to know.
When to pay super
The superannuation guarantee (SG) applies to employees 18 and over who earn more than $450 before tax in a calendar month.
Employees who are under 18 or do domestic work, such as being a nanny, must put in more than 30 hours a week before the employer is required to make SG contributions.
You may have to pay for some contractors. Check with the ATO if you’re unsure.
How much to pay
The minimum is 9.5% of your employees’ ordinary time earnings (OTE). OTE includes things like commissions, shift loadings and allowances but not overtime payments.
How to pay
When it comes to paying SG contributions into employees’ super funds, you must use SuperStream, a system in which money and data are sent electronically in a standard format between employers, funds, service providers and the ATO.
There are several ways to implement SuperStream, including through super funds’ online portals or commercial clearing houses such as the tax office’s small business super clearing house (see ato.gov.au or phone 1300 660 048).
You can use a payroll software package from MYOB or Xero to meet your SuperStream obligations, or you might prefer to seek the assistance of an accountant or bookkeeper.
How often to pay
You must pay super at least four times a year – the quarterly due dates are October 28, January 28, April 28 and July 28.You can pay more regularly if you like as long as the payments are all in by the deadline.
Also keep in mind that some super funds require employers to make contributions monthly. When you register with a fund with this requirement, you are agreeing to make monthly contributions to that fund, says the ATO.
Skip a payment and you could be hit with the ATO’s super guarantee (SG) and have to lodge an SG charge statement. The charge includes your super contribution shortfall, interest and an admin fee.
Where to pay
If your employee has nominated a fund, you must make payments into their chosen option. Make sure it is a complying super fund or retirement savings account. You can check at superfundlookup.gov.au.
If the employee has not chosen a fund for themselves, you are required to pay SG contributions into a MySuper option. Many retail, industry and corporate super funds offer MySuper accounts, which are known also as “default” funds.
As a rule, these funds take a balanced/growth approach to investing, with 70% of assets in growth (for example, shares and property) and 30% in defensive investments (cash and fixed interest), according to the federal government’s MoneySmart website.
However, be sure to check with the super fund about its investment approach and whether it offers adequate insurance cover. Also check the fund’s returns using ratings websites such as superratings.com.au and www.chantwest.com.au. The free information provided by these and other independent ratings services can help you narrow down the MySuper contenders.
Within 14 days of paying an employee’s first SG contribution into a super fund, you’re required to supply the fund with the employee’s tax file number.
Claiming a tax deduction
Meet all your SG obligations and you can claim the super contributions you make on behalf of your employees as a tax deduction that financial year.
Don’t neglect your own super
Self-employed people have lower super balances than employees across all ages, with average accounts for self-employed males at around $155,000, compared with $386,000 for male wage and salary earners. For women, the difference is $86,000 versus $159,000, according to the Association of Superannuation Funds of Australia (ASFA).
You’ll need strong willpower and discipline to make regular contributions to superannuation but the rewards include the tax benefits as well as a bigger savings pool to fund retirement. One way to make it easier is to have your contributions automatically deducted from your bank account.
From July 1, 2017 the requirement that you derive less than 10% of your income from employment sources has been abolished and regardless of your employment arrangement you may be able to claim a tax deduction. Those aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction.
Self-employed? Boost your own retirement savings
– Select a super fund from the time when you were employed so that you can use it for your self-employed contributions.
– Next you must make a contribution to your super fund within the limit of $25,000pa.
– You must make all your contributions for the year by June 30 if you wish to claim a deduction.
– Fill out a notice of intent form from your super fund. There is also one available online from the ATO website. This form lets the tax office know you intend to claim a tax deduction for your personal contributions.
– Your fund must acknowledge its receipt of the notice before you lodge your tax return for the relevant year. Then you can claim a deduction in your tax return for the contributions you made. Keep the correspondence from the super fund as proof for the tax office.
– If you change your mind about how much you want to claim as a deduction, you can vary the amount, provided you are still within the time limits specified for lodgement of the notice of intent. You must lodge a second notice specifying the higher or lower amount you wish to claim.
Most self-employed people can claim a full deduction for contributions they make to their super until the age of 75. You may also be eligible for the federal government’s super co-contribution payment. This helps low- to middle-income earners save for their retirement. If you’re eligible and you make personal super contributions, the government will put in up to a maximum of $500 depending on your annual income.