Claiming a tax deduction for your employees’ super: What are the rules?

SG Charge (SGC) pre-payments made for a future super contribution obligation in a later quarter.

Quarterly payment due dates for SG payments

*When a due date falls on a weekend or public holiday, you can make payment on the next working day

When are contributions considered paid?

If you use a clearing house to distribute SG contributions to your employees’ various super funds, your contributions are considered to be paid on the date the super fund receives it – not the date the clearing house receives it from you.

In order to claim a tax deduction for a salary sacrifice contribution, the payment must be received by your employee’s super fund in the same financial year as you want to make the claim.

If the salary sacrifice contribution payment for the fourth quarter is not received by the super fund until after 30 June, you are not able to claim a deduction until the following financial year.

Contributions you can’t claim as a tax deduction

There are some important exceptions to the tax deductibility of super payments you make for your employees:

1. Super Guarantee Charge payments

If you don’t make your SG contributions by the quarterly due date – or do not pay the full amount – you may be required to pay the Super Guarantee Charge (SGC). This payment is ineligible for a tax deduction.

The SGC consists of the SG shortfall amount, interest and an administration fee – none of which are tax deductible.

2. Employee spouse payments

Contributions made on behalf of an employee’s spouse are not tax deductible.

These contributions are considered a taxable fringe benefit and you will need to pay Fringe Benefits Tax (FBT) on them. They must also be included on your employee’s annual payment summary as a reportable fringe benefit.

3. Late contributions for employees aged 75 and over

If you make super contributions for an employee aged 75 and over they must be paid by the quarterly due date if you plan to claim a tax deduction for them.

When making a non-mandatory employer contribution on behalf of an older employee, if you pay the contribution later than 28 days after the end of the month in which your employee turns 75, your payment will not be tax deductible.

4. Ineffective salary sacrifice arrangements

To claim a tax deduction for salary sacrifice contributions, your arrangement with your employee must be considered an effective salary sacrifice arrangement.This means thearrangement must be entered into before the employee performs the work, a documented agreement with your employee is in place and the sacrificed salary must be permanently waived.

If the ATO considered the arrangement ineffective, the contributions will be considered a payment of salary and wages and a personal – rather than an employer – contribution. This means you will not be entitled to a tax deduction for the sacrificed amount and you may have underpaid your SG contributions, making you liable for the SGC.

5. Contributions to a non-complying super fund

An employee’s salary sacrifice super contributions must be made to a complying super fund or they will be considered a fringe benefit and you will be unable to claim a tax deduction for them.

The amounts will also be subject to FBT and must be recorded on your employee’s payment summary as a reportable fringe benefit.