SG amnesty – how are payments treated for contribution cap purposes?

20 Mar 2020

Lyn Formica

Head of SMSF Technical & Education Services

Legislation to encourage employers to voluntarily disclose their historical superannuation guarantee (SG) non-compliance and pay an employee’s full SG entitlements has now been legislated. Could the payment into superannuation of these potentially quite large SG shortfall amounts cause adverse tax consequences for the recipient? Thankfully, no.

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The legislation provides a one-off amnesty allowing employers to claim tax deductions for contributions made during the amnesty period to offset their SG obligations, as well as have the penalties and fees that may otherwise apply reduced to nil.
To qualify for the amnesty an employer needs to make disclosure to the ATO during the “amnesty period” starting on 24 May 2018 and ending on 7 September 2020. Only shortfalls in relation to quarters from 1 July 1992 until 31 March 2018 are eligible.
The amnesty may result in employers paying amounts representing late payments of SG covering a number of years. The payments are made to the ATO who must then pay these amounts to an employee’s superannuation account for the employee’s benefit. These contributions will be considered concessional contributions and normally counted towards the employee’s concessional contributions cap.

Some employees may find they exceed their concessional contributions cap due to the receipt of these (often unexpected) SG amnesty amounts.

Ordinarily, when an individual exceeds their concessional contributions cap, the individual can apply to the Commissioner for a determination to disregard contributions or to allocate them to another financial year. Such a determination can only be made if the Commissioner considers that there are special circumstances and that making the determination is consistent with the objective of building up superannuation from contributions made gradually over the course of the individual’s life. Receipt of ad-hoc unexpected SG shortfall amounts is often considered to be special circumstances and the Commissioner often does make a determination to disregard the contributions for cap purposes. However, making application can be a time consuming process & a successful outcome is not guaranteed.
Fortunately, under the SG amnesty rules:

  • Individuals do not need to apply to the Commissioner. Instead the ATO will make a determination on its own initiative when it receives the amounts from the employer and makes the contribution to superannuation, and
  • The Commissioner has indicated in its online materials that discretion will be exercised to disregard contributions made under the amnesty [QC 55626].

The SG amnesty rules also ensure that contributions made as a result of the amnesty do not attract the additional 15% tax under Division 293.

What about SG shortfalls not covered by the Amnesty?

Unfortunately SG shortfalls not covered by the amnesty (eg paid because of employer disclosures before 24 May 2018 or in respect of quarters after 1 April 2018) do not benefit from the concessions above. If they cause the individual to exceed their concessional contributions cap, the formal application process must be followed if the individual wants to have the contributions disregarded for cap purposes. And, if successful application is made and the contributions are disregarded for cap purposes, they end up being included as contributions on which the additional 15% Division 293 tax may be payable.