Superannuation Guarantee (Administration) – Stapled Fund – Guidelines for the Reduction of an Employer’s Individual Superannuation Guarantee Shortfall for Late Contributions Due to Non-acceptance by Notified Stapled Fund Determination 2021

Individual superannuation guarantee shortfall: Defined in subsection 19(1) of the SGAA. It is the amount by which the employer’s superannuation support for an employee for a quarter falls short of the minimum required level, calculated as the charge percentage multiplied by the employee’s ordinary time earnings base. The shortfall triggers the superannuation guarantee charge, which includes the shortfall amount plus an administrative component and nominal interest.

Stapled fund: Defined in section 32Q of the SGAA. It is a complying superannuation fund or retirement savings account that is already held for an employee, typically from a previous employer. From 1 November 2021, an employer who does not receive a chosen fund nomination from a new employee must request a stapled fund from the Commissioner under section 32R of the SGAA and contribute to that fund.

Choice of fund rules: The requirements under Part 3A of the SGAA that employers must contribute to a fund chosen by the employee, or if no choice is made, to either a stapled fund or a default fund that meets certain conditions (including workplace determinations or enterprise agreements made before 1 January 2021). The instrument refers to contributions made to a fund that “complies with the choice of fund rules” as a factor favouring reduction.

Reduction guidelines: The criteria the Commissioner must use when exercising the discretion under subsection 19(2F) of the SGAA. These are set out in sections 4(10) to (22) of the instrument. They cover when reduction is appropriate, the level of reduction (greater or lesser), circumstances that may decrease the shortfall further, circumstances where no further reduction is appropriate, and circumstances that may increase the shortfall via an uplift.

Mitigating factors and exceptional circumstances: Sections 4(16) to (19) list factors that may increase the level of reduction, including late notification of non-acceptance by the stapled fund, system outages, illness of the employer or a key employee, natural disasters, and the employer’s level of cooperation. But the Commissioner may refuse further reduction if the employer could reasonably have understood and complied with the rules, for example if the employer had prior compliance action.

Uplift: The Commissioner may increase the employer’s shortfall by up to 20% if the employer obstructed the Commissioner’s determination, or if the employer had a shortfall in the previous quarter because late contributions were made to a non-complying fund. The uplift cannot exceed the original shortfall amount.

Introductory period: A 12 month transitional period from 1 November 2021 to 31 October 2022 during which the Commissioner applies a more lenient test: reduction to nil if the employer satisfied the threshold conditions and made reasonable attempts to comply with choice of fund rules.

The instrument directly affects employers who have superannuation guarantee obligations for employees and who encounter the specific scenario where a stapled fund refuses to accept contributions. This is most relevant for employers hiring new employees who do not nominate a chosen fund, compelling the employer to request a stapled fund from the Commissioner under section 32R of the SGAA. If the stapled fund then declines the contribution, the employer cannot comply with the quarterly deadline and would otherwise face a superannuation guarantee charge.

The instrument also affects employees, though indirectly. Their superannuation outcomes depend on whether the employer successfully obtains a reduction. If the reduction is granted, the late contributions count towards the employee’s superannuation guarantee entitlement. If not, the employer pays the superannuation guarantee charge and the employee receives only the base contribution amount (the shortfall) plus interest through the Superannuation Guarantee Charge rather than a timely contribution to a fund.

The Australian Taxation Office (Commissioner) is the primary decision-maker under the guidelines. The instrument constrains the Commissioner’s discretion by requiring regard to specific factors, but still leaves wide latitude for judgement, particularly after the introductory period. The ATO must also issue written reasons for its decision regardless of outcome.

Superannuation funds that serve as stapled funds are indirectly affected because their refusal to accept contributions can trigger the employer’s need for relief. The instrument may influence fund behaviour if funds refuse contributions for operational or administrative reasons, knowing that employers may have a safety valve.

Compliance professionals and advisers must understand the instrument to advise employers on how to respond to stapled fund refusals, what documentation to keep, and when to seek a reduction. The instrument raises the compliance burden by adding a new layer of process: the employer must not only attempt to contribute to the stapled fund, but must also carefully document the refusal and subsequent late contribution, and potentially engage with the ATO to request a reduction.

The central duty on an employer is to provide minimum superannuation support by making contributions to a complying fund within 28 days after the end of each quarter. Where the stapled fund mechanism comes into play, the employer must:

• Request a stapled fund under section 32R of the SGAA if the employee has not chosen a fund (section 4(3)(a)).
• Attempt to make superannuation guarantee contributions to that stapled fund (section 4(3)(b)).
• If the fund refuses, make late contributions to another fund that complies with the choice of fund rules (section 4(3)(e)).
• Ensure the employee did not have a chosen fund at the time of the attempt (section 4(3)(d)).

The employer has a right to request a reduction of the shortfall under subsection 19(2F) of the SGAA, and the Commissioner must then have regard to the guidelines in this instrument. The Commissioner also has a duty to notify the employer in writing of the decision, including reasons (section 4(23)). This procedural safeguard means the employer can review the basis for any denial or partial reduction.

If the employer meets the five threshold conditions and falls within the introductory period, the Commissioner is obliged to reduce the shortfall to nil provided the employer made reasonable attempts to comply with the choice of fund rules (section 4(8)). After the introductory period, the Commissioner has wider discretion but must still consider the reduction guidelines.

The instrument also provides a limited right to group reductions: the Commissioner may apply the same reduction to multiple employees in similar circumstances (section 4(6)), which reduces the per-employee administration burden.

The employer does not have a guaranteed right to reduction. The Commissioner may decline reduction where the employer could reasonably have been expected to understand and comply with the rules (section 4(18)), or where the employer failed to make the late contributions within a reasonable time or failed to request another stapled fund (section 4(14)-(15)). The instrument makes clear that the mere small size of the shortfall is not a reason to apply reduction (section 4(19)).

This instrument does not itself impose penalties. Its primary operation is to provide relief from penalties (the superannuation guarantee charge) that would otherwise apply. However, it introduces the possibility of an uplift to the shortfall, which increases the penalty.

Under section 4(21), the Commissioner may increase the employer’s shortfall by up to 20% if:

• The employer engaged in action to prevent or obstruct the Commissioner from determining the shortfall or the level of reduction; or
• The employer had a shortfall in the previous quarter because late contributions made after stapled fund non-acceptance were paid to a fund that did not comply with the choice of fund rules.

The uplift is capped: it cannot cause the shortfall to exceed the original amount (section 4(22)). That is, if the original shortfall were $10,000, the uplift could increase it to a maximum of $12,000, but the uplift itself is capped so that the total cannot exceed the original shortfall. This is a somewhat odd limitation: it means the uplift operates only within the existing shortfall ceiling rather than adding a surcharge above the original liability. Practically, the uplift may increase the shortfall amount subject to the superannuation guarantee charge (which includes administrative components), so the effective cost to the employer still rises.

Enforcement of non-compliance with the underlying obligations is through the superannuation guarantee charge regime. If the Commissioner does not grant a reduction, the employer must pay the shortfall, the nominal interest component (calculated at 10% per annum), and an administrative component of $20 per employee per quarter (or $50 for small employers). The Commissioner may also issue default assessments and pursue recovery.

The instrument also notes that the Commissioner will not apply a reduction if before the late contributions were made, the employer already received an estimate of the superannuation guarantee charge or a default assessment (section 4(15)(c)). This encourages employers to act before the ATO escalates enforcement.

The Commissioner’s decision to apply an uplift or deny reduction is subject to review. While the instrument does not create a separate merits review mechanism, the employer can object to the decision under the Taxation Administration Act 1953. The requirement to give written reasons (section 4(23)) supports the employer’s ability to challenge the decision.

The instrument is made under the SGAA, specifically by reference to subsections 19(2F) and 21(2). It operates as a legislative instrument under the Legislation Act 2003, but its primary legal effect is through the SGAA.

Key interactions include:

• Subsection 19(2F) of the SGAA: This is the provision that gives the Commissioner power to reduce a shortfall. The instrument sets out the guidelines the Commissioner must have regard to under subsection 21(2). Without this instrument, the Commissioner would have unfettered discretion. The instrument therefore constrains and guides that discretion.

• Section 32R of the SGAA: This is the provision that requires an employer to request a stapled fund from the Commissioner. The instrument’s threshold condition in section 4(3)(a) refers to “the employer … was most recently notified by the Commissioner that a fund was a stapled fund for an employee following the employer … making a request in accordance with section 32R”. So the instrument only applies where the employer has actually made that request.

• Choice of fund rules (Part 3A of the SGAA): The instrument repeatedly refers to contributions made “to a fund that complied with the choice of fund rules”. This means the employer’s late contributions must satisfy the same rules that would have applied had the contributions been on time. For example, contributing to a fund the employee has subsequently chosen, a successor fund of the stapled fund, another stapled fund, the employer’s default fund, or a fund under a pre-1 January 2021 workplace determination or enterprise agreement.

• Subsections 19(2A) and (2B) of the SGAA: The instrument expressly does not apply to increases to shortfalls imposed because the employer did not contribute to a fund that complies with the choice of fund requirements (section 3(2)(b)). So the instrument cannot be used to reduce the additional penalty for failing to offer choice in the first place.

• Sections 22 and 23 of the SGAA: The instrument does not apply to the part of the shortfall where the employer’s contributions do not reduce the charge percentage to nil under those sections (section 3(2)(a)). This means the instrument only deals with shortfalls arising from the specific stapled fund non-acceptance scenario, not general underpayment.

• Taxation Administration Act 1953: The Commissioner’s decision under subsection 19(2F) is reviewable under the objection and appeal provisions of that Act.

The instrument also acknowledges that a superannuation guarantee charge assessment may have been issued. If the employer chooses to offset the late contributions against the SGC or carry them forward as a pre-payment, the Commissioner will not apply a reduction (section 4(10)). This prevents double-counting.

The instrument commenced on 1 November 2021 and is a standalone determination. The source text provided does not include any amendment history. Based on the instrument’s application date and the introductory period (1 November 2021 to 31 October 2022), the instrument appears to have been made as a transitional measure to accompany the introduction of the stapled fund requirements. There is no indication of subsequent amendments in the provided text.

However, the instrument may have been affected by later amendments to the SGAA or other related legislation. For example, the Treasury Laws Amendment (More Flexible Superannuation) Act 2020 introduced the stapled fund provisions effective 1 November 2021. This instrument was likely made shortly before that date. Any subsequent changes to the underlying SGAA provisions (such as subsections 19(2F) and (2G) or section 32R) would automatically affect the operation of this instrument, regardless of whether the instrument itself has been amended.

Practitioners should check the Federal Register of Legislation for the current version. The instrument is registered as F2021L01409. The introductory period has now expired (it ended 31 October 2022), so the transitional provisions in sections 4(7) to (9) are no longer operative. After 31 October 2022, the general reduction guidelines in sections 4(10) to (22) apply in full.

The source text does not contain any reference to litigation, case law, or Administrative Appeals Tribunal decisions involving this instrument. As a legislative instrument that commenced on 1 November 2021, it is relatively recent and may not yet have been the subject of reported decisions.

Privately, the instrument could be challenged on administrative law grounds if the Commissioner fails to have regard to the guidelines or gives reasons that do not properly address them. The requirement to provide written reasons under section 4(23) facilitates judicial review. An employer could argue that the Commissioner erred by not considering a mitigating factor listed in the instrument, or by applying an uplift without proper justification.

The instrument’s discretionary language (“The Commissioner will have regard to … The Commissioner may …”) gives the Commissioner broad scope, making successful challenges difficult unless the Commissioner acts irrationally or fails to consider a mandatory relevant factor. For example, if the Commissioner ignores clear evidence of a natural disaster affecting the employer, that could be an error of law.

No known decisions are cited in the source, so any litigation history would need to be independently researched. In a deep dive grounded only in the source, it is appropriate to note the absence of litigation history in the instrument itself.

The instrument contains several traps that employers and their advisers should be aware of:

The five conditions are cumulative: All five conditions in section 4(3)(a) to (e) must be satisfied before the Commissioner can consider any reduction. If the employer did not request a stapled fund under section 32R, or if the employee had a chosen fund at the time of the attempt, the instrument does not apply. The employer cannot rely on a vague “I tried” defence.

No reduction if ATO already involved: If before the late contributions were made, the Commissioner had notified the employer of another stapled fund, or issued an estimate of SGC or a default assessment, the Commissioner may not apply a reduction unless there are mitigating facts or exceptional circumstances (section 4(15)). This creates a race for the employer: act quickly after the stapled fund refuses, or lose the chance for relief.

Offsetting precludes reduction: If the employer has an SGC assessment for the quarter and chooses to offset the late contributions against it, or carry the contributions forward, the Commissioner will not apply a reduction (section 4(10)). The employer must choose between offsetting and seeking reduction. If the employer offsets, the contributions count for the employee but the employer forfeits the chance to avoid the administrative component and interest.

Shortfall only for the specific scenario: The instrument does not apply to general underpayment of SG. If the employer simply failed to make any contribution on time, the guidelines do not help. It also does not apply to increases under subsections 19(2A) and (2B) for failing to comply with choice of fund rules (section 3(2)(b)). So an employer who contributed to the wrong fund cannot use this instrument to reduce that penalty.

Lesser reduction for delay: If the employer did not make the late contributions within a reasonable time of the stapled fund’s non-acceptance, the Commissioner may apply a lesser reduction (section 4(14)). The instrument does not define “reasonable time”, creating uncertainty.

Group relief is not automatic: The Commissioner may apply the same reduction to a group of employees with similar circumstances, but that requires the Commissioner to be satisfied. It is not a right of the employer to self-assess a group-wide reduction.

The uplift trap: If the employer had a shortfall in the previous quarter because of the same stapled fund non-acceptance problem and failed to pay into a complying fund, the Commissioner can add an uplift of up to 20% (section 4(21)(b)). Repeat offenders face a compounding penalty.

Small shortfall is no excuse: The Commissioner will not further reduce a shortfall simply because it is small (section 4(19)). This means employers should not assume that the ATO will be lenient on trivial amounts.

Prior compliance history matters: Employers who have been subject to choice of fund compliance action, received administratively binding advice, or repeatedly contributed to non-complying funds cannot expect further reduction (section 4(18)). The instrument rewards first-time or occasional offenders, not persistent rule-breakers.

The introductory period is over: The transitional lenient approach (reduction to nil if reasonable attempts made) expired on 31 October 2022. Employers cannot rely on that safety net now.

To take advantage of the shortfall reduction mechanism, an employer should follow a documented process:

1. Request a stapled fund: When hiring a new employee who does not choose a fund, make a request to the Commissioner under section 32R of the SGAA within the required timeframe (before the end of the quarter). Keep a record of the request and the Commissioner’s response.

2. Attempt contributions to the stapled fund: Within the 28 day deadline after the quarter ends, attempt to make the superannuation guarantee contribution to the stapled fund notified by the Commissioner. Document the attempt: date, amount, fund details, and any correspondence with the fund.

3. Confirm the employee has no chosen fund: At the time of the attempt, verify that the employee has not provided details of a chosen fund. If the employee does choose a fund, the instrument does not apply, and the employer must contribute to that fund (and the late contribution will be to the chosen fund, which is fine).

4. If the stapled fund refuses: Obtain written evidence of the refusal (email, letter, phone note). Then, within a reasonable time, make the superannuation guarantee contribution to a fund that complies with the choice of fund rules. Acceptable options include:

   • A fund the employee subsequently chooses.
   • A successor fund of the stapled fund that refused.
   • Another stapled fund notified by the Commissioner (request one if needed).
   • If the Commissioner advises there is no other stapled fund, the employer’s default fund or a fund specified under a pre-1 January 2021 workplace determination or enterprise agreement.

5. Act promptly: The longer the delay between the stapled fund refusal and the late contribution, the greater the risk of a lesser reduction. If the ATO issues an estimate or assessment before the contribution is made, reduction may be entirely lost.

6. Document the process: Keep a file with: the stapled fund request and notification, evidence of attempt to contribute to the stapled fund, evidence of refusal, evidence that the employee had no chosen fund, and evidence of the late contribution, including the date and the fund used.

7. Seek reduction proactively: If the contribution is late, the employer may need to request the Commissioner to exercise the discretion under subsection 19(2F). The instrument does not specify a particular application form; the employer can generally raise the issue when lodging their superannuation guarantee statement or in response to a notice from the ATO.

8. Cooperate with the Commissioner: The instrument lists “the level of co-operation by the employer with the Commissioner” as a factor that may increase the level of reduction (section 4(17)(e)). Respond promptly to any ATO inquiries, provide the documentation, and be transparent.

9. Avoid repeat non-compliance: If the same stapled fund non-acceptance issue recurs in a subsequent quarter, ensure the late contributions are made to a complying fund, or risk an uplift of 20% on the shortfall for the later quarter.

10. Monitor the ATO’s decision: The Commissioner must notify the employer in writing with reasons. If the reduction is denied or less than expected, review the reasons against the guidelines. If the Commissioner appears to have ignored a relevant factor, consider objecting.

For advisers, the key is to create a checklist for clients who hire new employees. The stapled fund regime is still relatively new, and many small employers may not be aware of the requirement to request a stapled fund at all. Failure to make that request takes the employer outside the scope of this instrument, leaving them liable for the full shortfall without any possibility of reduction. The instrument therefore creates a compliance trap: the very mechanism designed to relieve employers (the reduction guidelines) is only available if the employer strictly follows the prior request process.