Reporting on superannuation: Ensuring the correct procedure for your workforce

The reporting of salary sacrificed superannuation contributions on payment summaries seems to be a relatively uncomplicated process: the amount reported on the payment summary should equal the amount provided by superannuation funds to the Australian Tax Office (ATO) for additional contributions. This is to enable a ‘closed loop’ for the ATO to compare information from superannuation funds with that provided on payment summaries.

The reality, however, generates a number of questions. What is the correct cut-off date for reporting from a payroll perspective, as opposed to reporting on superannuation? How do salary packaging providers treat last minute top-up contributions? How should funds in transit be treated?

Navigating reporting regulations

ATO requirements

The ATO outlines that the compulsory contributions to a superannuation fund are those that are made to comply with any one of the following: a super guarantee law, an industrial award, the governing rules of an individual’s super fund, or any state.

Any voluntary contribution that is in excess of these required contributions must be reported.

The ATO also requires that the employer reports on the contribution made in the year to which the contribution relates, irrespective of whether the funds have actually been received by the superannuation fund.

Superannuation fund requirements

In accordance with Superannuation Industry Regulations, superannuation funds must accept contributions that fall within the dates of the tax year (from 1 July – 30 June). It stands to reason that superannuation funds must remain open for business up to and including close of business on 30 June.

Payroll requirements

From a payroll perspective, employers are required to issue payment summaries, including the reportable superannuation amount, by 14 July.

Salary sacrificed superannuation contributions in transit

Many employees seek to maximise concessional contributions up to their respective cap of $25,000 or $50,000, and will do so with advice from their financial advisor.

The reportable contributions made by an employee to a complying fund are for the personal tax year, which runs from 1 July to 30 June.

Yet in practice, the employee’s contribution is often advised toward the end of June, after personal circumstances have been worked out.

Moreover, in some instances, there may be contributions made on 30 June or contributions which are late. In these instances, the physical flow of these funds to the superannuation fund will not happen until after 30 June. That is to say, these funds will arrive in the superannuation fund from 1 July, which will be the start of the subsequent tax year.

In this situation, the financial advisors should check with the superannuation fund’s rules to confirm whether they will allow for such contributions to be accorded to the year in which they were intended to arrive, even if the actual physical funds only arrive in the new tax year.

If the trustee of the superannuation fund is satisfied that the contribution relates to the prior year, the fund may accept that contribution.

Avoiding additional taxes

It is important to ensure that when employers issue their payment summaries on 14 July, they are in a position to include any reportable superannuation contributions from their employees made up to and including 30 June.

The superannuation fund will automatically consider all funds arriving in the fund after 30 June as pertaining to the new tax year.

This could present a problem in the following year, as superannuation funds have a certain ‘cap’ for the amount of funds allowed per year. When the cap is breached there is a greater tax than normal on the funds that exceed the allowable cap.

If contributions were intended for the previous year, yet are considered by the superannuation fund to relate to the new tax year, the unintended addition of these contributions may result in a total amount that could exceed the superannuation fund’s yearly allowable cap.

It is therefore important to ensure that all funds pertaining to a certain tax year are reported in that actual year, in order to avoid the possibility of breaching the contribution cap in the following year and incurring additional taxes.

The benefits of salary packaging providers

Salary packaging providers will include all contributions made, or instructed to be made by an employee, up to the close of business on 30 June. Funds which affect the payment must be available by this time. Salary packaging providers will only be in a position to report actual contributions to employers from 1 July.