Super on Paid Parental Leave

Background

On 7 March 2024, the government announced, alongside the release of the Working for Women strategy, that from 1 July 2025 it would pay superannuation on government-funded Paid Parental Leave (PPL).

The measures underpinning this announcement were subsequently embodied in the Paid Parental Leave Amendment (Adding Superannuation for a More Secure Retirement) Bill 2024, which received Royal Assent on 1 October 2024. The Bill effectively amends the PPL Act to add a superannuation payment on PPL payments for births and adoptions on or after 1 July 2025.

A super contribution made under this legislation is referred to as a Paid Parental Leave Superannuation Contribution (PPLSC).

Rationale

The chief argument for paying superannuation on PPL payments is that this would contribute to reducing retirement income inequality between men and women. This rationale is explicitly referred to in the Explanatory Memorandum to the Bill:

In 2021-22, the gap between the median male and female superannuation balance approaching retirement (60-64) was 25.2 per cent. The 2023 Intergenerational Report (IGR) identified that the superannuation gap reflects the lower lifetime earnings of women, including time taken out of the workforce to care for children. Paying superannuation on Commonwealth-funded Paid Parental Leave (PPL) recognises the important contribution parents make to society, by reducing the impact that career breaks to care for young children have on superannuation balances. This will help to improve equity in the superannuation system.

Eligibility & Commencement

The changes take effect from 1 July 2025.

Eligible parents with babies born or adopted on or after 1 July 2025 will receive an additional payment based on the Superannuation Guarantee (i.e. 12% of their PPL payment), as a contribution to a complying superannuation fund.

Timing of payments

The Government will make the PPLSC as a single, lump-sum payment at the beginning of each financial year based on a person’s eligibility in the preceding financial year.

In essence, if a person received one or more Paid Parental Leave (PPL) payments during a financial year – in relation to a child that was born or adopted on or after 1 July 2025 - they will receive a PPLSC to their nominated superannuation fund early in the following financial year. The PPLSC will also include an interest component.

This means that the first of the superannuation payments will flow in July 2026.

The ATO are required to pay the PPLSC to the trustee of a complying superannuation fund, for crediting to an account of the person (i.e. the PPL recipient) within that fund. Two exceptions to this exist:

1. If the PPL recipient is deceased at the time of the PPLSC payment, the ATO are permitted under the legislation to pay the person’s legal personal representative.

2. If a complying superannuation fund account cannot be ascertained for the PPL recipient, the ATO are authorised under the legislation to pay into the superannuation holding account special account (SHASA).

How is the amount of superannuation calculated?

The amount of the PPLSC is the sum of all PPL payments during the financial year – in relation to a child (or children) born or adopted on or after 1 July 2025 - multiplied by the applicable superannuation guarantee charge percentage for the income year, which is 12% from 1 July 2025.

As the PPLSC will only be paid by the ATO once per income year, it will also include an additional nominal interest component to compensate for forgone returns resulting from the annual payment cycle. The intention is that the rate prescribed will align with the equivalent rate prescribed for the purposes of the superannuation guarantee charge (SGC).

Recipients will not be required to make a separate claim to access the PPLSC. The ATO will calculate and disburse the PPLSC based on information it will receive from Services Australia about PPL payments.

Reporting

Once payment is made, the ATO must provide the employee with a written notice containing the following information:

• When and to whom the PPLSC was paid (e.g. to which superannuation fund the contribution was paid on behalf of the person),

• The amount of the contribution, and

• How the person may apply for review of the decision about the amount of the contribution.

  
  

Impact on Employers

The Bill will, arguably, add more complexity to the PPL Scheme as instead of the three parties currently involved (Services Australia, employers and employees) the PPL Scheme would expand to include five parties: Services Australia, employers, employees, the ATO and superannuation providers. That said, to a large extent, the employer will be uninvolved in the super payment as this will be made directly from the government to the employee’s nominated super fund.

Characterisation

The Bill inserts a new section 307-133 of the Income Tax Assessment Act 1997, which provides that the components of a PPLSC consist entirely of a taxable component. The implications of this are two-fold:

1. PPLSC attracts taxation treatment consistent with concessional contributions for the purposes of superannuation death benefits; and

2. PPLSC will count toward the concessional contribution cap (which from 1 July 2024, stands at $30,000).