The implementation time frame for the new SuperStream regime has been amended. David Shirlow and Kelly Cox detail what this means for SMSF trustees and the steps needed now to properly comply with the requirements.
Recent changes to the law supporting the SuperStream reforms now establish transitional rules that impose obligations on trustees and employer sponsors of certain SMSFs to put into place new processes for making and receiving contributions and related information electronically during the 2014/15 income year. This article sets out the key transitional rules and practical consequences for affected clients and employers.
Recent changes to SuperStream law
The Data and Payment Standards 2012 were enabled by the Superannuation Industry (Supervision) (SIS) Act 1993 and are supported by requirements imposed under the SIS regulations. On 27 May, the standards were amended by the Superannuation Data and Payment Standards (Contribution Transitional Arrangements) Amendment 2014. While some commentators have inferred from a media statement by Finance Minister Mathias Cormann on the previous day that the requirement to comply with the standards had been deferred for all funds and employers until 1 July 2015, that is not the case. Rather, the transitional arrangements introduce a phased approach for implementing the standards, which means trustees and employer sponsors of some SMSFs do need to take action before 1 July 2015 in relation to 2014/15 employer contributions.
Note that other contributions, such as those made by a fund member personally or their spouse, are not required to be made in accordance with the standards.
2014/15 employer contributions
Who is affected?
The standards do not apply in relation to contributions made during 2014/15 by either:
- an employer who has less than 20 employees (small employer), or
- an employer who is a related party as defined by the SIS Act of an SMSF trustee. Assuming, as is typically the case, that the employer is not a standard employer-sponsor under the act, then they will only be a related party of the fund if they are one of the fund members or a part 8 associate, as defined in the SIS Act in-house asset rules, of a member.
The standards do apply in relation to contributions made to an SMSF during 2014/15 by an employer with 20 or more employees who is not a related party of the SMSF trustee (unrelated large employer), as set out below. Small unrelated employers are also able to voluntarily adopt the standards for contributions made during 2014/15.
Rules for unrelated large employers
Broadly the requirements set out in the standards include:
• the electronic format to be used for contribution payments,
• the information to accompany contributions,
• the electronic format to be used for that information.
For 2014/15, the transitional arrangements provide the following short-term alternatives for unrelated large employers.
1. Payment requirements: Contributions must generally be made using an electronic payment method from 1 July 2014. The transitional arrangements provide that the electronic payment method for contributions made in the period between 1 July and 2 November 2014 just needs to be one the trustee has advised it can accept. In practice, the payment methods for contributions to SMSFs during this period are likely to be the same as those required under the standards, which include direct credit and Bpay. Other electronic payment methods may be allowed by mutual agreement between the employer and fund. A unique payment reference number, which is in a format determined by the employer, must also be assigned to the contribution to enable the fund to reconcile the payment and associated contribution message.
2. From 3 November 2014, employers must be able to send contribution payments using the electronic payment methods set out in the standards. Payment reference numbers assigned to contributions payments must also be generated in a prescribed format.
3. Information requirements: The information required to be sent from 1 July 2014 is the same for all time periods. The employer will need to provide details about the parties involved with the payment and messaging, and the type and amount of the contribution. Each relevant employee’s full name, residential address, tax file number and telephone number must be sent on the same day as the contribution and, if the employer has not previously made a contribution to the relevant fund for the employee, the employee’s date of birth and gender. Note, however, that an employer is relieved from providing certain information if it has made reasonable efforts to obtain it and the employee has not provided it. Each contribution message should be assigned a payment reference number that corresponds to the associated contribution payment.
4. Information format requirements: While the prescribed contribution information must be sent from the outset, there is scope for variation of the format in which information is sent in the early months. That is, from 1 July to 2 November 2014 inclusive, the contribution information merely has to be sent in an electronic format that the trustee has advised it can accept. For example, it appears to be possible for a trustee and the employer sponsor to agree that the information be sent by email. (There are certain other transitional concessions relating to processing details, which will not be covered here.) From 3 November 2014, contribution information must generally be sent in the approved electronic format.
SMSF trustee obligations
For their part, SMSF trustees must be able to receive contribution payments and related information from unrelated employers in accordance with the standards from 3 November 2014.
Time limits for allocating contributions
SMSF trustees continue to have up to 28 days, after the end of the month a contribution was made, to allocate it to the relevant member. The Australian Taxation Office (ATO) has expressed its view on the timing of the allocation of concessional contributions for cap purposes in its relatively recent tax determination – ATO TD 2013/22.
Immediate action items for SMSF trustees, members and employer sponsors
SMSF trustees receiving contributions from unrelated large employers must ensure they have the ability to receive employer contribution payments and prescribed supporting information:
- from 1 July 2014, electronically, in a format that they choose to accept,
- from 3 November 2014, in the standard electronic format.
To receive contribution information in the approved electronic format from 3 November, SMSF trustees will need to have an electronic service address. To obtain an electronic service address, trustees may need to engage a service provider, such as an SMSF administrator or messaging solution provider, to receive electronic contribution messages on the fund’s behalf. The ATO provides a register of SMSF messaging providers on its website.
Macquarie is one of at least 20 organisations that will provide its SMSF clients with an electronic message service to help them comply with the SuperStream reforms.
SMSF trustees or members will need to provide their employer with certain information relating to the fund, including the SMSF’s Australian business number, bank account details and electronic service address.
Employers may need to upgrade payroll software packages or engage a service provider, such as a clearing house or payroll bureau, that can meet the standard on its behalf. The ATO sets out employer obligations on its website.
ATO approach – SMSF trustees and non-compliance
As a result of recent legislation (Tax & Superannuation Laws Amendment (2014 Measures No 1) Act 2014), the ATO will have a range of enforcement options at its disposal from 1 July 2014. However, at this stage, there seems little point exploring those options as it would seem the ATO will initially adopt an educative approach to its regulation of the standard and related SIS regulations.
In this regard, at the time of writing, the following statement appears on the ATO website: “We recognise that implementing SuperStream represents a significant change for employers and SMSFs. In response, we will apply flexibility on start-up dates if you are making a genuine attempt to meet your obligations under the standard. You can expect us to work with you to achieve compliance as you transition-in. We also recognise that, from time to time, there may be circumstances where it is not possible for an employer or SMSF to comply with the standard; we will take these circumstances into account.
“After the first 12 months of implementation of each phase, we will gradually increase our focus on compliance with the standard. We may contact you to determine how you are progressing, if you are encountering any difficulties and to remind you of your responsibilities under SuperStream.”
Conclusion
The SuperStream electronification of employer contributions becomes relevant from 1 July 2014 for SMSFs with unrelated large employers, and affected SMSF clients need to be engaging an electronic service provider, communicating the necessary information to their employers and bedding down an appropriate process immediately. However, some comfort can be taken from the fact the ATO has clearly indicated it will be taking an “educative approach” to regulating contribution processes for some time to come.