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As employers, most need to manage the super guarantee payments for their employees. But unfortunately, some get themselves in trouble, as not all know when they are due.
The government introduced the superannuation guarantee charge (SGC) for Australian’s in 1992. Obliging employers to pay a percentage of salary to their employees’ superannuation fund. A contribution to building a nest egg to support their lifestyle in retirement.
However, some employers aren’t aware that timing plays a very important role in making these payments. And the possible implications of getting that timing wrong can be severe. In this article, we’ll examine the required SGC timing, the consequences of getting it wrong and the potential impact on cash flow.
All employers contributing to the superannuation fund can claim a tax deduction. However, most of them aren’t quite sure when to do it.
You’d never guess how many employers fall into the timing trap while making a claim.
This frequently happens for a single reason: they make a claim when it’s already too late.
According to the official Australian law, employers can make a claim in the same fiscal year in which they’ve made a super contribution.
Sounds simple enough, right? But there’s a problem.
The contribution won’t happen when the employer issues a payment, but when the employee receives it.
That may sound confusing, so let’s illustrate it in more detail.
Imagine you’re an employer and you issue a super contribution via wire transfer. You get the notification that you’ve made the payment and the money disappears from your account.
Do you make a deduction claim right away? If you did, you’d possibly be making a big mistake.
The electronic wire transfer doesn’t always happen instantly. Sometimes it takes five to seven working days to hit the employee’s account. Therefore, if you include the weekend, it may take up to two weeks for the payment to arrive.
But if you made the payment close to the end of the financial year and claimed before the transfer is completed, you may have to wait until next financial year to make the claim. If you counted on this deduction to balance the books, you may get the business in big cash flow trouble.
There is a common misconception when it comes to the Government’s Small Business Superannuation Clearing House (SBSCH). Specifically, the law states that the contribution is only official when it passes the Clearing House. However, many employers make a deduction claim as soon as they send the Clearing House the payment. Forgetting that there’s a significant amount of time between making a payment and it arriving in the superannuation fund account.
Here’s an example.
Say you’re an employer bringing forward super contributions to before the 30th of June. If you do so, you can claim a tax deduction that same year. You use a Clearing House, and you don’t leave enough time to process the payment. The payment doesn’t arrive at the fund until after June 30th. This means you lose your superannuation deduction for that year, and you have to wait to claim the deduction in the following year. All these seemingly small details are the difference between having a healthy cash flow and experiencing unnecessary troubles. Therefore, you need to know how to manage your super contributions and avoid these issues. Here are some tips that may prove helpful:
The Superannuation Clearing House is there to assist business owners with super contribution payments. However, this service isn’t mandatory. Business owners may want to avoid this method to:
Alternatively, business owners can make individual payments to different superannuation funds. This will quicken the payment process. However, you also have to be wary of the complications that may arise if you avoid the Clearing House. First, you need to make payments to the individual super funds of each employee four times a year. This takes up a lot of your time that you would otherwise spend on you, your business or your family. Also, the individual payment route will cost you additional fees, unlike the free Clearing House service. Do you want to risk missing out on a tax deduction in exchange for a smooth payment process?
Every employer thinks too much about the timing of the claim. But this makes them prone to different types of errors. Here’s a common occurrence. They don’t input valid employee details, which causes the super funds to reject the payment. In turn, they send the document back for revision. And all these can take up a few extra days. Those additional days are enough to break the deduction claim deadline. As a result, the entire process becomes futile.
The Australian government issued a list of things you need to pay attention to when filling in employee’s details:
If any of the above is inaccurate or invalid, the fund will reject the payment. Take the time to carefully check everything over, since your cash flow and potential deductions may depend on it.
The exact superannuation amount can spark debate and confusion. Make sure both you and your accountant know how much you need to contribute. Your employees have their ordinary time earnings (OTE). These are the wages your employees receive during their ordinary working hours. However, some other payments will also fall into the OTE category. These are bonuses, allowances, commissions, etc… And, there will also be exceptions. For example, they don’t include overtime payments. You need to pay 9.5% of your employees OTE to the superannuation fund. Therefore, it’s essential to know the exact amount that you need to pay to each employee. In recent years you can find online tools, such as superannuation calculator, that can help you determine the exact amount. Also, you can go to the Australian Tax Office website to see what falls into the employee’s OTE.
Are you planning to claim a deduction for your super contribution within this year? If so, you shouldn’t leave it until the last minute. As stated, you have to wait after the fund receives and accepts the contribution to make a claim. Otherwise, you’ll miss out on the financial year. The first day of the new fiscal year is the 1st of July. Thus, the last day to make a claim for the current year is the 30th of June. But if you make a payment on the 30th and the fund doesn’t receive it, you’re automatically late. It’s not enough that the banks are offering an instant paying system. If you’re using an electronic fund transfer service, it may take some time to process the payment. Also, there’s always a chance that you’ve entered wrong employee details. If the fund rejects your payment, you won’t have time to revise the documents. To avoid all of these potential headaches, leave some necessary breathing space so you can make amends.
As an Australian business owner, you’re obliged to make superannuation contributions. However, you can easily claim tax deductions on these payments if you know when to do it. Most employees learn that the timing is everything only after they’ve made a mistake. Try to be one step ahead of them. If you’re unsure of your capabilities to avoid the super trap, you can always consult the experts. At RJS, our team of accountants can assist you in making a clear superannuation payment plan. You’ll get to know a lot more tricks in taking advantage of claiming a deduction on super contribution. Also, you’ll maintain a healthy cash flow, which you can invest in growing your business further. So, let’s start planning those claims.
This article is published by R J Sanderson and Associates Pty Ltd ABN 71 060 299 783. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.