Superannuation Guarantee Amnesty

The ATO estimated that in 2014-2015 alone, employers failed to pay nearly $3 billion in superannuation earnt by workers, or about 5% of the full amount of superannuation that was payable. To tackle this, the Government has proposed a 12 month Superannuation Guarantee Amnesty for employers, which will remove fines for non-payment.

The new measures are intended to provide businesses with an opportunity to rectify unpaid employee superannuation guarantee (“SG”) while avoiding penalties for late payment. The Amnesty will last for 12 months, commencing on Thursday 24 May 2018 and ending on Thursday 23 May 2019. The Amnesty applies only to disclosures of previously undeclared SG shortfall amounts that are made during the 12 month amnesty period and the disclosures relate to the quarters starting when the SG regime commenced and all subsequent quarters until and including the quarter starting on 1 January 2018 – that is, the period from 1 July 1992 to 31 March 2018. This is an astonishing 26 years.

The benefits of the Amnesty will not be available for SG non-compliance that occurs on or after 1 April 2018. The Amnesty is the latest announced measure in a suite of proposed reforms to protect SG entitlements by:

• giving the ATO the ability to seek court-ordered penalties for directors who ignore obligations;
• requiring APRA regulated superannuation funds to report contributions more frequently to the ATO;
• implementing real-time reporting of payroll and superannuation information through Single Touch Payroll; and
• improving the effectiveness of the ATO’s various recovery powers, including that surrounding Director Penalty Notices.

Super Guarantee Charge (“SGC”)

If you don’t pay the minimum amount of SG for employees into the correct funds by due dates, directors may have to pay the SGC which consists of:

• SG shortfall amounts calculated on salary or wages
• interest on those amounts
• administration fees

Directors must lodge the SGC Statement with the ATO by the due date. The ATO provides online use of the Superannuation guarantee charge statement and calculator tool on their website to calculate liability and prepare the SGC Statement. You can also download the Superannuation guarantee charge statement – quarterly.

Directors are also liable for:

• a Part 7 penalty for failing to lodge an SGC Statement, equal to double the amount of the SGC, i.e. 200 per cent of the SGC payable (the penalty may be partially remitted); and
• the General Interest Charge (“GIC”) on the unpaid amount.

Further, aside from the GIC, any amounts payable are non-deductible including the Part 7 penalty.

Recovery Action by the ATO

The ATO is said to prioritise the collection of unpaid SGC debts. Failure to co-operate with the ATO can result in director penalty notices (potentially a ‘lockdown’ DPN) and/or garnishee notices.

If an employee makes a report for unpaid superannuation the ATO will launch an investigation on their behalf. The employee is kept informed of the investigation and the progress of any debt recovery actions.

Relief under the Amnesty

• Administration component will be waived

Where an employer makes a voluntary disclosure under the Amnesty, the administration component of $20 per employee per quarter will not be payable in respect of SG shortfalls for employees who are included in that disclosure.

• Part 7 penalty will not apply

The Part 7 penalty will not be applied to catch-up SG payments made during the Amnesty period.

• Catch-up SG payments will be deductible

Catch-up SG payments made between 24 May 2018 and 23 May 2019 will be tax deductible, i.e. in the 2017–18 and/or the 2018–19 income years. This includes payments made to the ATO in the form of the SGC, as well as contributions made directly to their employees’ superannuation funds that an employer has elected to offset against the SGC under s. 23A of the Superannuation Guarantee (Administration) Act 1992.

If the employer enters into a payment plan with the ATO that extends past 23 May 2019, any payments made after that date will not be deductible.

Key Points – Is the Amnesty a Trap?  

• The Amnesty is to apply from 24 May 2018 but is yet to be passed as law. The ATO has confirmed that the benefits of the proposed superannuation guarantee amnesty are not in effect, despite conflicting messaging that has caused confusion within the accounting profession. Until the legislation is enacted, the ATO will be required to apply the existing law.
• Amnesties might appear ‘unfair’ from the perspective of those directors who comply with the law. Perpetrators who previously have not made any effort to right their wrongs are perceived as being given too generous an opportunity. Noting also the point above, that while those who made voluntary disclosures to the ATO and corrected their wrongs before the Amnesty becomes law receive no reprieve.
• While the Amnesty allows the employer to either make payments of SG shortfall amounts directly to the ATO, or make an offsetting contribution directly to the employee’s superannuation fund, it is expected that most employers would pay the SG shortfall amounts to the ATO. Through the Amnesty, the ATO will acquire the details of those employers who have been non-compliant in the past. The ATO has made it clear that there will be no second chances for these directors in the future. Once the Amnesty period ends, full SGC penalties will apply, including a minimum 50 per cent penalty on top of the SGC amount payable.
• Significantly, the implementation of Single Touch Payroll for employers with 20 or more employees will help ensure that the ATO can identify non-compliance faster and more easily than it has in the past. Single touch payroll makes it easier for the ATO to identify unpaid SG yet there has been a holding up in passing the Amnesty’s legislation. So advisers needs to be careful when telling clients to wait for the SG amnesty. This could be a risky move which impacts the advisor’s professional obligations.
• The ATO has warned that where employers do not self-correct SG shortfalls during the Amnesty, they may face higher penalties in the future. In determining any remission of the Part 7 penalty, the ATO will take into account the employer’s ability to access the Amnesty. While the Commissioner must consider the particular circumstances of each case, generally a minimum penalty of 50 per cent of the SGC will apply to employers who could have disclosed during the Amnesty but chose not to.

If you’re an employer in this situation, it is advisable to talk to your adviser or accountant. Not only can they help you identify your unpaid SG, they can walk you through the process for claiming the amnesty, provided it becomes ratified by Parliament.