Most international assignments to Australia will trigger an obligation to make employer contributions to an Australian superannuation scheme. This can be problematic for offshore employers, as they may already make home country pension contributions on behalf of their assignees (resulting in ‘double pension’ payments), or they may not have factored in this cost when setting assignment remuneration.
Employers of assignees to Australia should have considered their Australian superannuation obligations before setting assignment terms, and have determined whether an exemption is available in respect of each assignee, to remove the requirement to make Australian superannuation contributions.
The requirement to make Australian superannuation contributions
The Superannuation Guarantee (Administration) Act 1992 (SGA Act) was enacted to ensure that most Australian employees receive superannuation contributions from their employer. The prescribed level of contribution is currently 9%, and employers who fail to make contributions may be required to pay a penalty, by way of a Superannuation Guarantee Charge (SGC), to the Australian Tax Office (ATO).
The obligation to make superannuation contributions or pay an SGC applies to all employers of employees working in Australia, including temporary assignees. Upon permanent departure from Australia, assignees may be able to withdraw their Australian superannuation by way of a cash payment (less a 30% withholding tax), which is known as the Departing Australia Superannuation Payment (DASP). Some assignees, including Australian and New Zealand citizens, will not be entitled to the DASP.
Exemptions for temporary assignees
Employers of temporary assignees to Australia, particularly those with ongoing home country pension obligations, should consider whether each assignee’s circumstances qualify them for an exemption from having to make Australian superannuation contributions. The following exemptions may be available.
Senior executives
Employers of ‘senior foreign executives’ working in Australia on a temporary basis and holding either a subclass 456 or 457 visa (or equivalent Electronic Travel Authority) are exempted from the requirement to make Australian superannuation contributions. Advice should be sought on whether a particular assignee will come within the definition of ‘senior foreign executive’. Factors which are considered in determining whether the person fits the definition include:
- seniority of role (eg a national or deputy managing executive may qualify)
- level of responsibility, and
- qualifications held appropriate to the position.
International agreements on superannuation contributions
Australia has bilateral agreements with a number of countries to prevent employers of overseas assignees being forced to make mandatory superannuation/pension contributions both in the home country and in Australia. Where such an agreement exists, a Certificate of Coverage may be obtained from the relevant authority in the assignee’s home country, which removes the employer’s obligation to make Australian superannuation contributions. Eligibility for a Certificate of Coverage will depend on each assignee’s circumstances, and should be considered on an individual basis.
Australia has implemented bilateral agreements on double superannuation with Belgium, Chile, Croatia, Ireland, the Netherlands, Portugal and the United States. New agreements have been signed with Germany, Japan, Korea and Switzerland, but are yet to come into force.
Options to avoid double pension payments where Australian superannuation contributions are required
If neither of the exemptions outlined above apply, it may be possible (subject to the terms of employment and the assignment, and the rules of the home country pension scheme) to avoid making double pension payments by suspending or reducing contributions to the home country pension scheme during the term of the assignment to reflect contributions made to the Australian superannuation scheme. If those options are unavailable (eg prevented by the scheme rules), it may be possible to make both payments and recover the DASP by agreement with each assignee. Legal advice should be obtained about any arrangement to recover the DASP, as there is a risk that such an arrangement may be viewed by the ATO as an attempt to avoid payment of the SGC (which is prohibited) and expose the employer to liability for payment of a penalty.
Conclusion
Employers of assignees to Australia should ensure that they understand their superannuation obligations and determine how they will deal with these, before each assignment commences. Each employer’s approach should be consistent with, and reflected in:
- the assignment agreement
- the employment agreement (as varied by the assignment terms), and
- relevant assignment policies.
