Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 62

Changes to SMSF contribution methods

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.

 

Monica Rule worked for the Australian Taxation Office for 28 years and is the author of ‘The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English’ www.monicarule.com.au

 

RELATED ARTICLES

SMSFs: 8 reasons they are over-spruiked and over-rated

Are you paying tax by not starting a super pension?

Watch your SMSF’s annual return this year

banner

Most viewed in recent weeks

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Latest Updates

Investment strategies

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Economy

A pullback in Australian consumer spending could last years

Australian consumers have held up remarkably well amid rising interest rates and inflation. Yet, there are increasing signs that this is turning, and the weakness in consumer spending may last years, not months.

Investment strategies

The 9 most important things I've learned about investing over 40 years

The nine lessons include there is always a cycle, the crowd gets it wrong at extremes, what you pay for an investment matters a lot, markets don’t learn, and you need to know yourself to be a good investor.

Shares

Tax-loss selling creates opportunities in these 3 ASX stocks

It's that time of year when investors sell underperforming stocks at a loss to offset capital gains from profitable investments. This tax-loss selling is creating opportunities in three quality ASX stocks.

Economy

The global baby bust

Across the globe, leaders are concerned about the fallout from declining birth rates and shrinking populations. Australia, though attractive to migrants, mirrors global birth rate declines, and faces its own challenges.

Economy

Hidden card fees and why cash should make a comeback

Australians are paying almost two billion dollars in credit and debit card fees each year and the RBA wil now probe the whole payment system. What changes are needed to ensure the system is fair and transparent?

Investment strategies

Investment bonds should be considered for retirement planning

Many Australians neglect key retirement planning tools. Investment bonds are increasingly valuable as they facilitate intergenerational wealth transfer and offer strategic tax advantages, thereby enhancing financial security.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.