In last month’s newsletter we provided an update on Single Touch Payroll (STP), highlighting progress towards the implementation of STP for employers with 20 or more employees from 1 July 2018.
This month’s news is that the Federal Government has decided that employers with 19 or fewer employees will have to move to STP a year later — i.e. from 1 July 2019. Smaller organisations to which this extension will apply will need to factor the transition into their forward planning.
Superannuation Guarantee Update
In other news, the Government has announced that in order to give the ATO near real-time visibility over superannuation guarantee (SG) compliance by employers, it will implement measures to:
- require superannuation funds to report contributions received more frequently, at least monthly, to the ATO. This will enable the ATO to identify non-compliance earlier and to take prompt action;
- improve the effectiveness of the ATO’s recovery powers, including strengthening director penalty notices and use of security bonds for high-risk employers, to ensure that unpaid superannuation is better collected by the ATO and paid to employees’ super accounts’; and
- give the ATO the ability to seek court-ordered penalties in the most egregious cases of non-payment, including employers who are repeatedly caught but fail to pay SG liabilities.
Directors of NFPs should be aware that the tax law imposes the same obligations on them as are imposed on their ‘for profit’ counterparts. Simply because an organisation may be pursuing philanthropic or community benefits rather than profits does not relieve directors of the need to ensure their organisation meets its tax obligations. While many NFPs fall within income tax exemption provisions, such organisations continue to have other tax obligations, notably those arising in relation to employees (e.g. withholding tax from employee wages and salaries and remitting this to the ATO, making compulsory superannuation guarantee contributions in respect of their employees, etc.)
The Taxation Administration Act reinforces an organisation’s tax obligations by, in effect, making directors personally liable for any failure to withhold and remit PAYG amounts or for any failure to make compulsory superannuation guarantee contributions (SG contributions) on behalf of employees. The personal liability is created through the mechanism of director penalties.
For instance, consider the case of SG contributions in respect of employees which must be paid to their nominated fund by the 28th day of the month following the end of the quarter to which the payments relate (the required payment date). Failure to pay the required SG contributions by the required payment date has the following consequences:
- The organisation becomes liable to pay tax in the form of the superannuation guarantee charge (the SGC) which is equal to the unpaid compulsory superannuation, as well as interest of 10% (from the commencement of the quarter to which the payment relates) and an administrative charge.
- The organisation must inform the ATO of this tax liability — called the SG shortfall — by lodging a superannuation guarantee statement (SG Statement) within the period of a further month (i.e. by the 28th day of the second month following the end of the quarter to which the unpaid SG contributions relate – the ‘Due Lodgement Date’). If the SG Statement is not lodged on time, the organisation is exposed to a penalty in the amount of 200% of the tax.
- If the SG contributions are merely late, the organisation still has a liability to pay the SGC but may be able to offset the late payments against the SGC. Alternatively, the late payment of SG contributions may be carried forward as a prepayment of SG contributions for the same employee.
- An SG Statement should be lodged even if the SG contributions are paid after the required payment date because this is the mechanism by which the late payment can be offset against the SGC.
- Each director is personally liable to pay a penalty (i.e. a director penalty equal to the unpaid tax) on and from the Due Lodgement Date.
- The Commissioner can recover the penalty from a director personally by first giving written notice (the Liability Notice) to the director – once 21 days have elapsed from the date of giving the Liability Notice, the Commissioner can commence proceedings to recover the penalty from the director.
- The only way that a director can avoid the penalty (i.e. have the penalty remitted) is by ensuring that the unpaid amount is reported to the ATO in the SG Statement and one of the following actions occurs (i) the debt is paid; (ii) the organisation is placed into administration before the end of the 21 day period or (iii) the organisation commences to wind up before the end of that period.
- If the unpaid SGC has not been reported to the ATO within three months of the due date, the director penalty can only be remitted by payment. In other words, failure to lodge the SG Statement within 3 months precludes the directors seeking protection through appointing an administrator or commencing winding-up the organisation.
In short, directors should satisfy themselves that their organisation has systems in place to ensure that SG contributions are made by the 28th day of the month following the end of the quarter to which those compulsory contributions relate. Directors should require actual evidence that payment has been made and not merely assurances from their accounting personnel that it will be done.
As noted above, failure to pay SG contributions can set in train a process of further steps that need to be taken, substantial interest and substantial penalties being incurred by the organisation, and eventually (but definitely in the near term) the prospect of a director’s personal liability to pay the tax.
Directors should not assume that provided they act within the 3 month period following the date on which the SG Statement is required, they will be protected. There have been instances where a Liability Notice has been given and a Court has held the Liability Notice is effective although it has not come to the attention of a director, so the 21 day period following it has elapsed without the directors acting by appointing an administrator or commencing winding up of the organisation and the directors were thereafter precluded from obtaining protection.
The ATO has various sources of information in relation to non-payment of compulsory superannuation. Not the least of these, are complaints by employees who do not receive notification that the SG contributions have been paid and reports from superannuation funds. As noted above, reporting by the latter to the ATO are to be made more frequent, so directors can expect closer scrutiny that their organisations (and they) are complying with the provisions of the superannuation guarantee legislation.
The foregoing is not intended to be a comprehensive description of SGC implications of non-payment of SG contributions. Directors should recognise that the non-payment will potentially have personal consequences for them and should consider seeking detailed advice where SG contributions are not paid on time.