What you need to know about the increase in mandatory Superannuation Guarantee Contributions

What you need to know about the increase in mandatory Superannuation Guarantee Contributions

Back in 1992, compulsory superannuation contributions introduced. It was a policy implemented to ensure that Australians were looked after in retirement and to reduce the amount of government assistance required for seniors. When introduced, the plan was to increase them over time between 1992 to 2002 from 3% to 9%. In 2010, it was proposed that the rate be raised and legislation was passed to enable the continued increase of the rate over time to 12% by 2025. With this, we are moving one step closer to 12% with the upcoming adjustment.


What are the mandatory changes to SGC?

  1. The compulsory superannuation guarantee contribution (SGC) rate will increase on 1 July 2021 to 10% (up from the current rate of 9.5%) for all eligible employees.
  2. Under the recent Federal Budget, the Government announced its intention to remove the $450 threshold from 1 July 2022 to benefit low-income earners. This measure has not yet been legislated.

The definition of eligible employees is employees earning more than $450 per month. There a few additional layers of complexity for employees aged under 18. You can find out more here. Or by having a chat with us.


How will the SGC rate change impact you and your business?

Employers must guarantee that their payroll systems are current and accurate so that all eligible employees are receiving contributions at the increased rate of 10% from 1 July 2021.

If you have an up-to-date payroll system that is compliant with Single Touch Payroll (STP) requirements, these changes should be relatively simple to comply with as new employees engaged on or after 1 July 2021 will automatically be registered under these new changes.

Employers can be subject to penalties and fines for underpayments/late payments of employees’ superannuation. The ATO has taken a particularly tough stance on superannuation.


Superannuation Contribution Caps

Indexation will be applied to the superannuation contribution caps for the first time since 1 July 2017. The new contribution caps will apply from 1 July 2021 as follows:

  • Concessional contribution cap – up from $25,000 to $27,500 per annum from 1 July 2021
  • Non-concessional contribution cap – up from $100,000 to $110,000 per annum from 1 July 2021

These changes will also have ‘flow-on’ effects on other superannuation contribution measures such as the three year bring forward rule (for both concessional and non-concessional contributions) and the carry-forward unused concessional contributions rule. With these new caps, you should be wary of employees' contributions as exceeding them will result in employees having to pay more tax.  If you have previously utilised your bring-forward period in either the 2019/20 financial year or the 2020/21 financial year, you can’t take advantage of the higher non-concessional cap until your current bring-forward period expires.

Superannuation can be tricky, which is why it is essential to contact an expert regarding the tax treatment and regulations you may face. If you are unsure about these changes or would like to have your treatment of employee contributions reviewed, contact Link Advisors we can provide you with our thoughts and point you in the right direction if required.