UPDATE: The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 received royal assent on Friday 6 March 2020. Employers have less than six months to review their historical compliance and take advantage of the concessions afforded under the superannuation amnesty. The amnesty period ends at 11.59pm 7 September 2020.
The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, which gives effect to a superannuation guarantee amnesty, was finally passed by the Senate on 24 February 2020. The legislation is expected to receive Royal Assent shortly.
The amnesty, which will end six months from the date of Royal Assent, provides employers with a unique opportunity to voluntarily disclose any historical superannuation guarantee shortfalls to the Australian Taxation Office (ATO) and be entitled to generous concessions.
Employers who fail to disclose any shortfalls during the amnesty period will face hefty penalties if detected by the ATO.
What are an employer's obligations?
All employers must contribute a minimum amount of Superannuation Guarantee (SG) to each employee’s chosen superannuation fund at the applicable rate (currently 9.5%) based on the employee’s Ordinary Time Earnings (OTE). These contributions must be made quarterly by certain deadlines (i.e. by 28 October, 28 January, 28 April and 28 July). SG contributions are considered to be made on time if they are received by the employee’s superannuation fund by the due date. Employers who do not comply with their obligations are liable to pay a Superannuation Guarantee Charge (SGC) which comprises the following:
- The shortfall amount (calculated based on salary and wages, not on OTE);
- 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 may be liable for penalties of up to 200% of the SGC amount, imposed at the Commissioner’s discretion. All payments, including the SGC and any penalties, are non-deductible for income tax purposes.
What are the terms of the Amnesty?
Employers who voluntarily disclose their non-compliance to the ATO during the amnesty period will be entitled to the following concessions:
- Income tax deductions for SGC amounts disclosed;
- Waiver of the $20 administration fee; and
- Waiver of any penalties
As the amnesty was first announced on 24 May 2018, the concessions will only apply to shortfall amounts incurred for quarters between 1 July 1992 and 31 March 2018. Any shortfall amounts emanating from quarters after March 2018 will be subject to SGC in full, including the $20 administration fee per employee, and will remain non-deductible for income tax purposes.
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 may be subject to penalties at the Commissioner’s discretion.
What are the penalties if employers do not disclose during the Amnesty period?
Once the amnesty period is over, the penalties for non-compliance with SG obligations will be a minimum of 100% of the SGC for any quarter that was eligible for the amnesty, with no power for the Commissioner to remit penalties below that amount unless the employer can demonstrate ‘exceptional circumstances’ that prevented the employer from making a disclosure during the amnesty period.
What could be reasons for a superannuation shortfall?
An employer might have an unpaid SG liability and exposure to associated penalties any of the following reasons:
- Late payments of SG – The relevant date for assessing whether an SG payment has been made late is the date that the SG payment is received by the employee’s superannuation fund. For example, although employers may have paid SG payments by the due date for the relevant quarter, that may not allow sufficient time for the payments to be processed and received by the superannuation fund.
- Underpayments – An underpayment of SG may arise where the employer does not correctly classify various payments to employees as OTE. Common examples where this may occur include:
o Allowances (e.g. car allowances), leave loading and bonus payments;
o Misinterpretation of the requirements under an enterprise bargaining agreement or industry award;
o Incorrectly classifying employees as contractors;
o Failing to recognise that payments to some contractors are also subject to SG; or
o Simple formula errors.
What do you need to do?
We encourage all employers to be proactive by doing the following:
- Determine when SG payments were received by the nominated superannuation fund(s) and whether these were within required timeframes;
- Undertake a payroll system review to check that you have paid the correct amount of SG contributions based on OTE at the applicable rate (currently 9.5%);
- Check that you comply with the requirements of your employees’ industrial awards and employment contracts to ensure you have not underpaid salary and wages, and thus SG contributions; and
- Review all individual contractors to determine whether there is a risk they may be deemed to be employees by the ATO. Please note that a future dispute by an aggrieved individual who believes they should have received superannuation could instigate a full review by the ATO.
For those employers who have already made voluntary disclosures from the date the amnesty was announced (24 May 2018), the ATO has confirmed that the amnesty concessions will be applied retrospectively. These employers may be entitled to income tax deductions for SGC payments made to the ATO, as well as a refund of penalties and other administrative costs.
If any underpayments or late payments are identified, new SGC statements will need to be prepared and lodged with the ATO, together with any payment to correct the error. Further, if the review identifies errors outside of the amnesty (e.g. after 31 March 2018), there are strategies that we can employ to reduce or mitigate penalties imposed by the ATO.
What are the next steps?
It is critical that employers consider their SG compliance position and how they might take advantage of the generous concessions offered by the amnesty. Employers should contact their Pitcher Partners representative to review their situation and determine what action is required well before the conclusion of the remaining six-month amnesty period.