Stapled Super Funds

Posted on August 29, 2022 by Ashley Dawson

The stapled super fund legislation came into play on 1 November 2021, meaning employers may have an extra step to take to comply with choice of fund rules if:

• they have new employees start, and
• the employees do not choose a super fund.
• the employer may now have to request their new employees ‘stapled super fund’ details from us.

A stapled super fund is an existing super account linked, or ‘stapled’, to an individual employee so it follows them as they change jobs. This aims to reduce account fees, avoiding new super accounts being opened every time an employee starts a new job. If you don’t meet your choice of super fund obligations, additional penalties may apply.

The change aims to stop new super accounts from being opened every time an employee starts a new job.

See how this affects you if you are an:

Employer

From 1 November 2021, if you have new employees start and they don’t choose a super fund, you may have an extra step to take to comply with choice of fund rules. You may need to request their ‘stapled super fund’ details from us.

When to request stapled super fund details
You will need to request stapled super fund details for new employees who start on or after 1 November 2021, when:

• you need to make super guarantee payments for that employee
• they are eligible to choose a super fund, but don’t. This includes contractors who you pay mainly for their labour and who are employees for super guarantee purposes

You may need to request stapled super fund details for some employees who aren’t eligible to choose their own super fund.

This includes employees that are:

• temporary residents
• covered by an enterprise agreement or workplace determination made before 1 January 2021.

For employees that started working for you on or after 1 November 2021 and have not provided you with their choice of super fund, you should make contributions into:

• the employee’s stapled super fund ,or
• your employer nominated account (if the ATO advises you that they do not have a stapled super fund).

However, once an employee tells you their choice of super fund, you have 2 months to start paying contributions into that fund.

Steps to requesting stapled super fund details

Before you can request stapled super fund details from the ATO using their online services, you need to have offered all eligible employees a choice of super fund. Before the ATO can provide a response, they’ll need to be able to confirm that an employment relationship exists. There is no limit to the number of requests you can make.

Employee

If you commence work from 1 November 2021, your employer may have an extra step to take to comply with the choice of fund rules if you don’t choose a super fund. They may need to request details of a ‘stapled super fund’ from the ATO for you.

This change aims to save you money on super account fees by stopping unintended super accounts from being opened every time you start a new job.

If you are starting a new job from 1 November 2021 and don’t choose a super fund, your employer may contact the ATO to request details of an existing super account of yours to pay your super into (known as a stapled super fund). If you have not made a choice and you do not have a stapled super fund, your employer can contribute to their nominated default fund for you.

You’re generally eligible to choose a super fund for your super guarantee contributions if:

• you’re employed under an award or registered agreement that doesn’t require super support
• you’re employed under an enterprise agreement or workplace determination made on or after 1 January 2021
• you’re not employed under any award or registered agreement (including contractors paid principally for their labour).

You’re not eligible to choose the super fund you want your super guarantee contributions paid into if:

• your super is paid under a state award or registered agreement
• your super is paid under certain workplace agreements made before 1 January 2021 that require super support, including some Australian workplace agreements (AWA)
• you’re a federal or state public sector employee, excluded from super choice by law or regulations
• you’re in a particular type of defined benefit fund or have already reached a certain level of benefit in that super fund.

Even if you are not eligible to choose the super fund you want your super guarantee contributions paid into, from 1 November 2021, your employer may still need to contact the ATO to request details of your stapled super fund.

How will a stapled super fund be selected?
The stapled super fund selection will be based on information we hold about your super funds.

If you have one existing eligible super account, this will be notified to your employer as the stapled super fund account for contributions.

To be a stapled super fund, the fund must meet a number of requirements. This includes you being a current member of the fund and it must be a:

• complying superannuation fund
• retirement savings account
• complying superannuation scheme.

Where you have multiple existing eligible super accounts, we will apply ‘tiebreaker’ rules. These rules consider:

• whether we have previously identified an account as a stapled super fund
• how recently contributions have been made to each of the accounts
• the account balances
• how recently each of the accounts were created.

If you are concerned how the tiebreaker rules will be applied, you should use a super standard choice form to nominate your preferred fund.

If the employer requests a stapled super fund, the account details returned by the us will follow the tiebreaker rules outlined above.

Encouraging choice of super fund

The new stapled super fund step only applies from 1 November 2021 when a new employee does not choose their own super fund.

You can support your members to choose their own super fund by:

• helping them to understand the super standard choice form
• reminding them of the benefits of choosing their own super fund and keeping track of their super
• directing them to Super for individuals to understand how they can find their super fund details to complete their super standard choice form.

You should offer members the newest copy of the Superannuation standard choice form to elect their choice of super fund.

What if you haven’t made a request, when you should

As the changes are changes are being introduced, the ATO will assist employers to ensure they are meeting their obligations. However if contributions continue to be made to an employers default fund without making a stapled super fund request, the ATO may impose a choice shortfall penalty.

To avoid the choice shortfall penalty, make sure:

• you request the stapled super fund details for your employee as soon as possible if they have not provided you with their choice of fund
• you pay the employee’s full super guarantee contribution to the stapled super fund we return to you in the request
• pay the contribution to the stapled super fund by the quarterly due date.

Should you have any questions or concerns regarding the stapled super fund rules, please contact our Team on (08) 9316 7000 to discuss.

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Division 7a – What is my accountant talking about ?

Posted on by Kelsi Keep

If you own a closely held private company, you have probably heard your accountant talk about Division 7A at one point or another. If you had no idea what your accountant was talking about this article covers the background of why division 7A was brought in and what it’s effect is on the drawing of after tax profits from a private company.

Background
When Division 7A of the Income Tax Assessment Act 1936 (ITTA 1936) was introduced in 1997 the tax rate for companies was significantly less than the top marginal rate for individuals + Medicare levy.

Drawing a dividend from a company would trigger a top-up tax liability where the shareholder’s individual tax rate was higher than the company rate. (eg. 36% company tax rate vs 47% top marginal rate for individuals including Medicare)

This created an incentive to draw the company’s after tax profits (or unrealised profits) in the form of a loan, rather than a dividend for closely controlled private companies (where there were no third party shareholders or directors to complain) to avoid paying the top up tax.
Section 108 of the ITAA 1936 was the integrity provision intended to prevent shareholders from drawings funds from private companies tax free.

This section relies on the Commissioner forming the opinion, after either a voluntary disclosure or audit activity, that a loan or other advance or crediting should be deemed to be a dividend if it could not be proven that at some stage the loan was going to be repaid.

Usually, there was no real intention of repaying such loans, and with no further tax liability, the shareholder accordingly enjoyed the extra funds.

Division 7A was introduced to fix this situation, replacing its predecessor, section 108 ITAA 1936.

What is Division 7A?
Under section 109D ITAA36, a private company is deemed to have paid an unfranked dividend (limited to the company’s distributable surplus) if it makes a loan during an income year to a shareholder (or associate), that is:

• not fully repaid before the “lodgement day” (the earlier of the company’s tax return due date or the date the company tax return is lodged) for that year; and
• not one of the types of loans that Division 7A(D) excludes from being treated as a dividend

The excluded loan that we are interested in here is that covered by section 109N ITAA 1936.

This provision sets out criteria for the loan which, if met, will result in the company not being taken to have paid a deemed unfranked dividend in that income year.

The criteria are:

• the loan terms are defined in a written agreement that is executed before the company’s “lodgement day”;
• the interest rate on the loan for income years after the one in which the loan was made is equal to or greater than the benchmark interest rate for each year; and
• the maximum term of the loan is seven years (unsecured) or 25 years (secured)This exclusion from being treated as a dividend also applies where a trust has an unpaid present entitlement (UPE) owing to a private company, and the trust makes a loan to a shareholder (or associate) in that company.

Section 109E requires that minimum annual repayments are made each year after the one in which the loan was made for excluded loans.

The reality is that minimum annual repayments are rarely paid by transferring money.

An effective way to make a cashless repayment is to offset a dividend declared by the company against the loan. Each party (lender and borrower) makes a legally effective payment to the other, without the need to transfer any money.

Proposed Legislation Changes
The 2016 Federal Budget announced that the government will make targeted amendments to improve the operation and administration of Division 7A. These changes will provide clearer rules for tax payers and assist in easing their compliance burden while maintaining the overall integrity and policy intent of Division 7A.

The start date has been delayed over the years and has now been revised to be from 1 July 2020 to income years commencing on or after the date of Royal Assent of the enabling legislation.

Watch this space for further information once legislation has been drafted and we have a clearer idea of what the changes will entail.

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