The 'SuperStream' regime is due to commence from 1 July 2014 for medium and large employers, but there is still currently much confusion around how the regime is exactly meant to work, particularly given the recent announcement made by the Government to provide transitional relief until 1 July 2015. In this article, I seek to provide some clarity around SuperStream and the operation of the transitional rules.
Background - SuperStream rules
The Cooper Review into superannuation noted that a majority of businesses still used cheques as a form of payment. The review suggested that a switch to electronic payments would help reduce errors such as data processing mistakes. As a result, changes were introduced to standardise the way that:
· employers made superannuation contributions, and how they provided information to the superannuation fund about the contribution; and
· how trustees received both the contribution and information about who the contribution is for.
Hence, not only do the rules standardise the way that contributions are made, but they also standardise the manner in which the information about the contribution is reported to the fund. In this regard, the electronic service address component of these new rules has confused many employers and trustees. For advisers, the introduction of these new rules essentially mean that you need to assist both your clients who are employers together with your SMSF clients to ensure they are aware of the introduction of the new rules.
Understanding SuperStream
The rules will commence from 1 July 2014 for medium and large unrelated employers with at least 20 employees as at 1 July 2014 (transitional rules apply). This also means that SMSFs receiving contributions from these employers generally will need to comply with SuperStream from 1 July 2014, subject to the transitional rules discussed below.
For employers with less than 20 employees at 1 July 2014, they will not need to comply with the rules until 1 July 2015. It should be noted that this assessment of the number of employees is made as at 1 July 2014. Hence, if an employer has 20 employees as at 1 July 2014, but the number of employees dips below 20 after this time, the employer will need to comply with SuperStream from 1 July 2014. However, related employers (regardless of the number of employees they have) are exempt from SuperStream.
Although the SuperStream rules do not contain a specific definition of 'related party', the ATO has advised that the 'related party' definition to be used for this purpose is the definition in S.10(1) of the SIS Act 1993. This is the same definition of related party used by, for example, S.71 of the SIS Act 1993 (dealing with the in-house asset rules).
As noted above, SuperStream generally impacts on both employers and SMSFs receiving superannuation contributions. In relation to SMSFs, the situation can be broadly summarised as follows:
· SMSFs not receiving contributions - SuperStream has no application;
· SMSFs receiving contributions from related employers only - these funds are exempt from SuperStream;
· SMSFs only receiving contributions from unrelated employers with less than 20 employees as at 1 July 2014 - they do not need to comply with SuperStream until 1 July 2015.
· SMSFs receiving contributions from an unrelated medium or large employer - they need to comply with SuperStream from 1 July 2014, subject to transitional rules.
Transitional rules - SuperStream
To assist with the smooth implementation of SuperStream, the data and payment standards have been amended by the ATO to provide transitional relief for employers. Refer to the legislative instrument, Superannuation Data and Payment Standards (Contribution Transitional Arrangements) Amendment 2014, which has recently been registered. In this regard, superannuation payments need to be made electronically (where possible).
However, a transition phase has been introduced allowing information about the superannuation payment to be sent in a format other than using an 'electronic service address' until 2 November 2014. For example, the transitional rules would be satisfied if the employer sent information to the fund about the superannuation payment via email.
Further transitional relief was announced by the Government, with Senator Mathias Cormann stating that "..Superannuation funds will have up to 1 July 2015 to meet the new standards." The ATO are advising that this is an exemption from penalties only, and they expect employers and SMSFs to start transitioning across to SuperStream from 1 July 2014 (subject to the transitional rules outlined above). In this regard, the ATO make the following comment on the fact sheet entitled Employer checklist – A step by step guide to preparing for SuperStream:
SuperStream contributions start from 1 July 2014 onwards so you should start preparing now. The earlier you begin your implementation, the sooner you will see the benefits and the less chance you will face any compliance issues.
Make sure you contact your service provider to check their start dates and work out the best time to begin.
We will provide flexibility for you on your start date, provided you are doing your best to implement and have a firm plan to do so no later than 30 June 2015.
The ATO have also advised me that some employers (e.g., those employers using SAP software) will not be SuperStream ready until early next year. In this regard, the ATO noted that the employer will be required to satisfy their superannuation guarantee obligations, but will be unable to comply with SuperStream until this time.
For this reason, the ATO has recommend SMSFs contact their employer to determine whether or not the employer is SuperStream ready. One of the main reasons for doing so is to prevent the SMSF from incurring unnecessary costs (e.g., purchasing an 'electronic service address') before it needs to do so.