Government cracks down on salary sacrifice loophole

The Federal Government will take action to close a loophole that allowed employers to short-change employees who chose to make salary sacrifice contributions to their superannuation accounts.

The move follows the release of a Superannuation Guarantee Cross-Agency Working Group report which recommended closing the loophole and improving employer's compliance with their superannuation guarantee obligations.

"If Australians are to continue to have confidence in the integrity of the superannuation system, we must ensure employers are paying workers their full entitlements, whether they are wages or superannuation," Minister for Revenue and Financial Services Kelly O'Dwyer said.

The government established the Working Group - comprising senior representatives from the ATO, the Treasury, the Department of Employment, ASIC and APRA - in December 2016 to provide a set of recommendations to improve superannuation guarantee compliance.

In the report authors outlined how, due to a loophole in the legislation, all employer superannuation contributions including those made under salary sacrifice arrangements serve to satisfy the employer's superannuation guarantee obligations.

For example an employer's obligation to contribute $9500 in superannuation for a person earning $100,000 could be met in full (and without further employer contributions) if the employer contributed $9500 or more into superannuation under a salary sacrifice arrangement with that person.

"There is no clear rationale for this situation, which may reflect the fact that salary sacrifice was not in widespread use when the current legislation was drafted in the early 1990s," the report noted.

While it is difficult to quantify the prevalence of this practice, analysis provided by Industry Super Australia in December 2016 claims that 360,000 Australian are affected by the practice, costing them $1 billion in lost payments.

The Working Group itself does not have evidence that the practice is widespread.

In a recommendation to government, the Working Group calls for an amendment to the Superannuation Guarantee (Administration) Act 1992 to specifically include in the base for calculating an employer's superannuation guarantee obligations, being those salary or wages sacrificed to superannuation as part of salary sacrificing arrangements.

Industry Super Australia has welcomed the recommendation and the government's reaction, but noted that it will only help "one in 10 affected by unpaid superannuation". According to the association's estimates, non-payment of compulsory superannuation affected almost three million entitled workers at an average of $2025 each in 2013/14.

"The report today shows the ATO, which has primary responsibility for policing unpaid super, still hasn't come to grips with the problem despite having the best data available to identify individual taxpayers at risk of underpayment," Industry Super Australia public affairs director Matthew Linden said.

Linden made calls for new laws to require employers to pay super more frequently, and for the Government to green light small businesses in Single Touch Payroll, adding: "Without taking these extra steps millions of Australians will continue to be shortchanged billions in super, with the government having to pick up the tab with higher age pension costs."

Read more: SuperannuationSalary sacrificeSuperannuation GuaranteeLoopholeWorking GroupIndustry Super AustraliaFederal GovernmentFinancial servicesKelly O'DwyerMatthew Linden
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