While the government’s removal of the $450 superannuation threshold will be a positive for those previously ineligible for employer contributions, the exercise may prove a tiring one for some small businesses, who will be left to shoulder the administration, says one tax expert.
As part of its 2021–22 federal budget, the Morrison government announced that it would move to scrap the $450 superannuation threshold, broadening the scope for those previously ineligible for employer contributions.
But the change is likely to have adverse administrative implications for small business owners, said John Jeffreys, tax counsel at Tax & Super Australia.
“Employers will need to give choice of superannuation fund forms to employees, have their employees fill out these forms and engage in extra administrative effort to pay this new superannuation obligation,” Mr Jeffreys said.
“For some of these employees, it may be the first time they have ever had superannuation contributions made on their behalf and these employees will need to select a fund or use the employer’s default fund. The administrative cost per employee will be burdensome for some small businesses.”
While the government signalled that it will do away with the threshold altogether, Mr Jeffreys said it’s hard to believe that there won’t be one at all, even if only a small one.
“I wonder whether, after consultation, some threshold level will be set, say, $50,” he said, “so that employers are not engaged in very small-scale superannuation contributions with all of the administrative work that goes with that.
“The change seems to imply that super contributions must be paid for every $1 of employment income. This will bring a number of people into the superannuation net, which is a good thing for those who previously got no super for their work.”
Mr Jeffreys said that for businesses with access to the ATO’s business clearing house, the payment process might not be as onerous.
However, the scheme is only accessible by businesses with fewer than 19 employees, and an aggregated turnover of less than $10 million, leaving some businesses to work harder, and longer, to comply, seeing as many of them are unlikely to have pre-existing infrastructure in place.
“Some employers may have a number of employees that are only engaged for small amounts of time each month,” he said. “Due to the number of employees, this may mean that the employer cannot use the ATO’s small business clearing house.
“Such businesses will have a greater burden, particularly if the businesses’ systems are not efficiently set up.”
Mr Jeffreys also warned that, in paying super contributions on lower or more casual incomes, taxpayers are likely to see much of their contributions eroded by super fund fees.
“It can be imagined that some of these employees will have quite low superannuation balances,” he said. “The danger is that these low balances could be eroded by fees charged by superannuation funds.”
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