Changes to how SMSF contributions are received
If your SMSF receives contributions from an unrelated employer, you need to prepare now for changes to the way contributions are received which come into effect on 1 July. Paper transactions will soon be a thing of the past.
SMSF trustees must prepare for new ways to receive superannuation contributions for their members as they can no longer accept cheques from 1 July 2014. A new superannuation law requires certain employers to make superannuation contributions for their employees into SMSFs electronically.
Employers affected by this change are those who have 20 or more employees. The law does not apply to SMSFs that have related parties as employers. A related party includes the members of the SMSF as well as relatives of members, business partners and any associated companies and trusts. Employers with less than 20 employees will need to comply with the new law from 1 July 2015.
The purpose of this law is to increase the efficiency of the Australian superannuation system. It is aimed at improving the quality of superannuation records, allowing the use of tax file numbers to identify members, improving rollover transactions between superannuation funds and standardising the process for making contributions.
Affected employers will be required to make superannuation contributions for their employees by submitting payments using the new Data and Payment Standards and having the payments recorded electronically using a prescribed format. Employer contributions made by cheques or other paper formats are no longer acceptable.
In my opinion, our superannuation system will benefit from this new law as there are currently over 180 different payroll systems used by different superannuation funds. Their processes are complex, time consuming, expensive and prone to error. The new requirement will provide a minimum standardised format for all superannuation funds and will reduce manual processing, improve data quality, reduce errors, lower costs, require less preparation time and provide faster receipt of contributions. It will mean better information about the amounts and timing of payments made for employees and will improve data matching which will reduce both lost superannuation accounts and the chance of members being given multiple accounts and thus having to pay multiple administration fees and insurance premiums.
SMSFs that receive superannuation contributions from unrelated employers will need to contact their employers and provide them with:
an electronic service address (not an email address) for the delivery of contribution data messages
the SMSF’s Australian Business Number
the SMSF’s bank account details
There’s not much time. SMSFs will need to provide the above information to their unrelated employers by 31 May 2014 in order to meet the deadline of 1 July 2014. They will also need to ensure that the SMSF’s bank account is able to receive electronic contributions and contribution messages with information about the payments in the new electronic format. To help SMSF trustees obtain an electronic service address, the ATO has published a register of messaging solution providers on its website.
I recently accessed the ATO website to check on the providers. Australia Post is one of the providers that can assist SMSFs with receiving readable messages from employers and other superannuation funds. They are currently providing a special welcome offer of $25 for a 12 month registration. The offer ends on 31 May 2014.
SMSFs that fail to comply with the new electronic standard will not be able to receive superannuation contributions from unrelated employers and rollovers from retail superannuation funds. An administrative penalty of up to $3,400 may be imposed by the ATO for non-compliance. The ATO can also issue a direction to an SMSF trustee to address the contravention and take action.
Unrelated employers that don’t receive the information from SMSFs before 1 July will be required to remit their employee’s superannuation contributions to their company’s default superannuation fund instead of the employee’s SMSF. This will mean delays for members receiving their superannuation contributions. I encourage trustees to look into the Data and Payment Standards without delay.
Footnote from Monica: The Australian Taxation Office has since informed me that although SMSFs that fail to comply with the new electronic standard will not be able to receive superannuation contributions from unrelated employers, they will still be able to accept rollovers from retail superannuation funds.
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