As part of the broader ‘Your Future, Your Super’ reforms, the concept of default ‘stapled super funds’ for employees will take effect from 1 November 2021. Where employees start work on or after 1 November 2021, and do not choose a super fund, most employers will have to check with the ATO if their employee has an account with an existing super fund, known as a ‘stapled super fund’, to pay the employee’s super guarantee into. The ‘stapled fund’ concept has been introduced to address the issue of employees having multiple super funds (due to, for example, moving from job to job where each employer has a different default super fund into which they make super contributions) and therefore paying multiple sets of fees, administration costs, and other inefficiencies.

In anticipation of the introduction of stapled funds, the ATO has released two sets of draft guidelines:

Superannuation Guarantee (Administration) - choice of fund - written guidelines for the reduction of an increase in an employer's individual superannuation guarantee shortfall determination 2021 (SPR 2021/D1).
Superannuation Guarantee (Administration) - stapled fund - guidelines for the reduction of an employer's individual superannuation guarantee shortfall for late contributions due to non-acceptance by notified stapled fund determination 2021 (SPR 2021/D2).

SPR 2021/D1 sets out the facts and circumstances that the ATO will consider when deciding to reduce the ‘choice shortfall’.

SPR 2021/D2 sets out the factors the ATO will consider when deciding to reduce a shortfall that arises from where SG payments are late because the employee’s stapled fund did not accept the employer’s contributions and the employer then made the contributions to another fund.

Background

Under the Superannuation Guarantee (Administration) Act 1992 (SG Act), where super guarantee (SG) contributions are not made in full by 28 days after the relevant quarter, the employer will have a shortfall under section 19 of the SG Act because the level of contributions made will not reduce the employer’s shortfall to nil under sections 22 or 23 of the SG Act.

Typically, a shortfall will trigger an SG charge, which is broadly made up of:

The SG shortfall (made up of super calculated on salary and wages);
‘Nominal’ interest of 10% per annum (accrues from the start of the relevant quarter)
An administration fee of $20 per employee, per quarter.

Since 1 July 2005, employers who make SG contributions in respect of eligible employees are required to satisfy the choice of fund requirements under Part 3A of the SG Act. Where an employer does not satisfy the choice of fund requirements, the employer’s individual SG shortfall for the employer for a quarter is increased by around 25% under sections 19(2A) or 19(2B) of the SG Act (choice shortfall).

SPR 2021/D1 – reducing the choice shortfall

The Commissioner has a discretion under section 19(2E) of the SG Act to reduce the amount of the choice shortfall. SPR 2021/D1 notes that the Commissioner will apply a transitional compliance approach for single default accounts. From 1 November 2021, additional choice of fund requirements will apply with the introduction of the ‘stapled fund’ requirements. From 1 November 2021 until 31 October 2022 the ATO will be taking an educative approach as follows:

In the first instance, employers will be provided with help and assistance to comply with the stapled fund requirements;
The Commissioner will reduce any choice shortfall to nil if that shortfall arose due to the employer’s lack of knowledge of the stapled fund requirements rather than intentional disregard.

This transitional compliance approach will end on 31 October 2022. After that time, it is expected that employers would have had sufficient time to understand and comply with the stapled fund requirements.

The Commissioner will apply the general reduction guidelines from 1 November 2022 onwards, using the following table as a guideline:

SPR 2021/D1 notes that the Commissioner may reduce the choice shortfall even further where certain mitigating factors exist, including:

The employer made a voluntary disclosure of their failure to meet choice of fund requirements;
The failure to meet the choice of fund requirements arose due to an error or honest mistake which has since been rectified and the employer is now contributing to the employee’s chosen fund, or to the employee’s stapled fund if no fund was chosen;
The employer has an otherwise good compliance record; and
The failure to comply with choice was due to exceptional circumstances such as ill-health or impact of a natural disaster and the employer has since taken steps to comply.

SPR 2021/D2 – non-acceptance by stapled fund

Under section 19(2F) of the SG Act, the Commissioner has discretion to reduce an employer’s SG shortfall which has arisen because:

The employer made contributions to the employee’s stapled fund (as notified by the ATO);
The stapled fund did not accept the contributions for that employee;
The employee did not have a chosen fund at the time the employer attempted to make the SG contribution; and
The employer then made the contributions to another fund and those contributions were made late.

Similar to SPR 2021/D1 and the choice shortfall, the ATO will take a transitional compliance approach from 1 November 2021 to 31 October 2022. During this period, the Commissioner will reduce an employer’s shortfall for one or more employees to nil where the shortfall has arisen in the circumstances set out above and the employer has made reasonable attempts to comply with the choice of fund rules when making the late SG payments.

After 31 October 2022, the Commissioner will determine whether or not to reduce the employer’s shortfall in accordance with the general reduction guidelines as set out in SPR 2021/D1. The Commissioner may reduce the shortfall in whole or in part in the circumstances set out above (ie, late payment due to non-acceptance by stapled fund) unless the employer has an SG charge assessment for the quarter and has chosen to offset the late contributions against the SG charge or to carry forward the late contribution and apply it as a pre-payment of a future contribution for the same employee.

In determining the level of reduction, the Commissioner will have regard to:

Whether an employer made the late SG contribution to a fund for the employee that complied with the choice of fund rules when the most recently notified stapled fund did not accept the contributions, and
Other mitigating factors or exceptional circumstances that affected the employer in making the SG contributions or their compliance with the choice of fund rules.

The Commissioner also has discretion to increase the shortfall by up to 20%, including in circumstances where the employer engaged in action to prevent or obstruct the Commissioner from determining the individual SG shortfall and/or level of reduction.

For further information please contact:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Philippa Briglia
Senior Associate
T +61 3 9611 0173
E pbriglia@sladen.com.au