If you have ever contemplated a review of your superannuation guarantee obligations and processes, the ideal opportunity to act is over the next six months.
This is because the Federal Government has proposed an amnesty for employers who haven’t always complied with their superannuation guarantee (SG). Those employers who voluntarily disclose their non-compliance to the ATO during the amnesty period would be able to claim income tax deductions for the SGC amounts disclosed, will not be charged the administration fee and will not be subject to any further penalties.
The Federal Government has re-introduced legislation to establish a one-off amnesty to encourage employers to address any historical non-compliance with their SG obligations. The amnesty was first announced on 24 May 2018 but failed to pass through both Houses of Parliament. Under the reintroduced legislation, the amnesty will run for six months after the date Royal Assent is given on the legislation.
The amnesty offers an opportunity for all employers to effectively review their past contributions and address any areas non-compliance. Whilst the amnesty offers incentives for those employers who make voluntary disclosures, there will be substantial penalties imposed on employers who fail to make disclosures and are subsequently found under review or audit to have shortfalls in their past SG contributions.
All employers must contribute a minimum amount of superannuation to each employee’s chosen fund at the applicable rate (currently 9.5%) based on the employee’s ordinary time earnings. These contributions must be made quarterly prior to certain deadlines. Employers who do not comply with this obligation are liable to pay a SGC comprising the following:
- the shortfall amount;
- interest calculated at 10% per annum of the shortfall amount; and
- an administration fee of $20 per affected employee, for each quarter in which a shortfall arose.
In addition to the SGC, employers are liable for penalties of up to 200% of the SGC amount, imposed at the Commissioner’s discretion. All payments including both the SGC and any penalties are non-deductible for income tax purposes.
Under the terms of the amnesty, employers who voluntarily disclose their non-compliance to the ATO will be able to claim income tax deductions for the SGC amounts disclosed, they will not be charged the administration fee and will not be subject to any further penalties. However, as the amnesty was first announced in May 2018, the concessions under the amnesty only apply to shortfalls for quarters up to and including the quarter ended 31 March 2018. Any shortfalls emanating from periods after the March 2018 quarter will be subject to the full SGC, including the administration fee, and will remain non-deductible.
During the amnesty period, the ATO will continue to conduct SG reviews and audits and any non-compliance detected through these activities will not be eligible for the amnesty concessions and will be subject to penalties at the Commissioner’s discretion.
Penalites after amnesty
Once the amnesty period is over, the penalties for non-compliance will be a minimum of 100% of the SGC for any quarter covered by the amnesty, with no power for the Commissioner to remit them below that amount unless there are ‘exceptional circumstances’ that prevented the employer from making a disclosure during the amnesty period.
Reasons for shortfalls
Often employers believe they are complying with their superannuation guarantee obligations when in fact they are non-compliant. SG shortfalls can occur for many reasons, including:
- Failing to correctly determine employees’ ordinary hours of work and what payments attract SG obligations as ordinary time earnings and what do not;
- Incorrectly identifying all allowances and one-off payments which are subject to SG including ad hoc payments and bonuses, some car allowances and in many instances, leave loading;
- Not contributing superannuation in relation to contractors who are engaged principally for their own labour even if they quote an ABN and provide a tax invoice; and
- Failing to make quarterly payments by the due date (i.e. paying later than the 28th day after the end of each quarter). Even if payments are made into the fund after the due date, a shortfall is still deemed to arise and must be disclosed to the ATO as the shortfall is calculated on most payroll items, including overtime with interest continuing to accrue until the SGC statements are lodged.
What employers need to do
The amnesty is a clear precursor to the ATO increasing their super guarantee compliance activities and imposing substantially increased penalties for non-compliance. It clearly offers an opportunity for employers to address any historical issues and correct any systemic issues going forward.
The amnesty also comes on the back of the ATO’s enhanced data analytics tools and the introduction of Single Touch Payroll (STP). STP has significantly increased the information available to the ATO due to the real-time reporting of all relevant payroll items and superannuation contributions. Now more than ever employers risk detection of non-compliance given the volume and detail of data available to the ATO.
With the amnesty period now underway, we encourage all employers to review their past superannuation payments and confirm that contributions have been made in accordance with SG requirements. If any shortfalls or late payments are identified, systems need to be adjusted and disclosures made to the ATO to take advantage of the favourable amnesty terms and avoid the risk of substantially increased penalties through future detection by the ATO.
Whilst the amnesty legislation has not yet been passed, the ATO has stated that the proposed concessions will be applied retrospectively once it is. Notwithstanding this, employers should not hesitate as the concessions will not apply if an employer is targeted for a superannuation guarantee review or audit during the amnesty period. Even if the amnesty legislation is not ultimately passed, employers should still make the appropriate disclosures to the ATO to avoid the potential penalties that may be imposed for non-disclosure.
Please contact Pitcher Partners if you would like further information on how to take advantage of the amnesty or if you would like a review undertaken of your SG contributions and the systems supporting them.