Last week we posted about the taxation of Australian superannuation funds potentially being treated as social security under the Australia-U.S Income Tax Treaty. The post explicitly assumed, for argument’s sake, that “superannuation guarantee” was considered part of the social security system of Australia. The post also implicitly assumed that superannuation guarantee was paid into superannuation funds by employers, and not by the Government of Australia. Under these assumptions, the post concluded that the treaty would not apply to avoid U.S. tax because the amounts contributed into and distributed from the superannuation funds were not "paid by" the Government of Australia.
After having reviewed the Superannuation Guarantee (Administration) Act of 1992 (“SGAA”), we now see an argument that superannuation guarantee is, in substance, paid by the Government of Australia. Since our prior post was based on the premise that superannuation guarantee was not “paid by” the Government of Australia, we decided that our analysis was incomplete and we have deleted the post.
Some of our notes from reviewing the SGAA include:
Section 16 of the SGAA imposes a tax (referred to as the “superannuation guarantee charge” or "SGC") of 9% “on an employer’s superannuation guarantee shortfall * * * .”
The employer’s superannuation guarantee shortfall is comprised of “individual superannuation guarantee shortfalls.” Sec. 17 SGAA.
Individual superannuation guarantee shortfalls are computed as 9% of wages paid to each employee, with a maximum contribution base. Sec.s 15 and 19 SGAA.
The Australian tax is generally required to be paid quarterly, and interest accrues if it is not paid in a timely fashion. Sec.s 46 and 49.
The amount of the tax collected by the Government of Australia generally must then be paid by the government into complying superannuation funds for each “benefitting employee.” Sec.s 63A and 65 SGAA.
In practice, the tax is not collected, and in practice the government does not directly fund employee superannuation funds. Instead, the law provides that the 9% tax is reduced to the extent the employer “contributes for the benefit of an employee to a complying superannuation fund * * *.” Sec. 23(4) SGAA.
Under these circumstances, one might argue that Australian employers are effectively acting as agents of the Government of Australia, and that the government is, in substance, collecting the tax and then paying the amounts into the employee superannuation funds.
To be clear, we are not concluding that contributions into or distributions out of Australian superannuation funds should be taxed as social security under the Australia-U.S Income Tax Treaty. Instead, we are merely indicating that our prior blog post, suggesting that superannuation guarantee was not paid by the Government of Australia, was based on an incomplete analysis.