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A. What to consider as an employer

SG rates

Section: 1.3

1.3 SG Rates

While an individual or company (on behalf of its employees) may theoretically contribute any amount into superannuation there is a limit to which those contributions attract a tax deduction.

Australian law requires all employers to provide a minimum level of superannuation for their employees. For each quarter of a financial year, an amount equal to the prevailing SG rate of each eligible employee's ordinary time earnings (OTE) must be paid to a complying super fund.

The SG payment rate is legislated to slowly increase to 12% by 1 July 2025 on the following schedule:

Financial year  SG rate (%)
.
2017-2018 9.5
2018-2019 9.5
2019-2020 9.5
2020-2021 9.5
2021-2022 10
2022-2023 10.5
2023-2024 11
2024-2025 11.5
2025-26 and future years 12

A New SG Regime from 1 January 2020

From 1 January 2020, a salary sacrifice contribution will no longer be considered part of a super guarantee contribution made by the employer. For instance, if an employee elects to salary sacrifice 5% into their superannuation fund, the employer will still be required to pay 9.5% (or the prevailing SG rate) of the employee's ordinary time earnings (OTE) base, into the employee's super fund to avoid the super guarantee charge.

Example:
David earns $3,000 a week and has an effective salary arrangement with his employer to sacrifice $350 to his superannuation fund each week. David's salary only comprises ordinary time earnings (OTE) amounts.

David's employer previously calculated his SG liability on David's after salary sacrifice wage as follows:

  • $3,000 - $350= $2650
  • $2650 x 9.5% = $$251.75 SG liability

From 1 January 2020, David's employer must calculate the SG liability on David's OTE base which includes the salary sacrificed OTE amounts. The calculation is, therefore:

  • $3,000 x 9.5% = $284.00

This is in addition to the $350 David chooses to salary sacrifices each week.

David's employer makes the following payments to his super fund:

  • Salary sacrificed amounts of $350 each week (as per arrangement)
  • SG contributions of $3,692 each quarter ($284 x 13 weeks)

While SG contributions made between 1 July 2020 and 28 July 2020 may count towards the employer's SG obligations for the April to June 2020 quarter, any SG contributions made between 1 July 2020 and 28 July 2020 will count towards the employee's concessional contributions cap for 2020-21.

This technical resource is intended for the use of financial advisers only. It is current at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Tuesday, June 22, 2021