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Payroll Article – SGC: Amnesty and Enforcement

This article looks at two recently proposed amendments to the law that aim to encourage employers to correct past errors regarding unpaid superannuation, and also to strengthen enforcement measures with regard to unpaid superannuation.

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It is common knowledge that employers are required to provide a minimum level of superannuation support for their employees to avoid being subject to the penalising superannuation guarantee charge (SGC).

Currently the minimum quarterly superannuation guarantee (SG) amount for each eligible employee is 9.5% of their ordinary time earnings, which must be paid into the employee’s elected superannuation fund by the following due dates:

Source: ATO

Quarterly payment due dates for super payments
Quarter Period Payment due date
1 1 July – 30 September 28 October
2 1 October – 31 December 28 January
3 1 January – 31 March 28 April
4 1 April – 30 June 28 July

Employers who fail to pay meet their SG obligations by the due date of payment will be liable for SGC even if the SG amount is paid after the relevant due date of payment. The SGC is made up of:

  • the SG shortfall amounts calculated on an employee’s salary and wages;
  • an interest component (currently 10%); and
  • an administration fee ($20 per employee, per quarter).

In addition, employers are also required to lodge a SGC statement. The payment of the SGC and lodgement of the SGC statement must be made by the following due dates:

Source: ATO

Quarter Period Due date
1 1 July – 30 September 28 November
2 1 October – 31 December 28 February
3 1 January – 31 March 28 May
4 1 April – 30 June 28 August

Failure to comply with these obligations will result in further penalties as follows:

  • employers who lodge the SGC statement by the due date but don’t pay the SGC amount will incur a general interest charge calculated on a daily compounding basis and accruing from the date that the SGC amount is due for payment up to when it is paid in full.
  • employers who fail to lodge the SGC statement on time will be liable to pay additional SGC which can be up to 200% of the amount of the charge payable.
  • if the amount of SGC paid is less than the actual amount due, the ATO can impose an administrative penalty up to 75% of the shortfall. In addition, directors of employer companies may also become personally liable.

Recently proposed SGC changes

Following a recent focus by the Government (and media) on SG compliance, two pieces of draft legislation have been introduced into Parliament:

  1. Amnesty – in a bid to encourage employers to self-correct historical SG non-compliance, the Government has announced a once-off, 12-month amnesty. This amnesty applies to previously undeclared SG shortfalls relating to periods from 1 July 1992 to 31 March 2018 (i.e. is not available in relation to SG shortfalls that relate to the periods starting on or after 1 April 2018); and
  2. Enforcement – to improve the current enforcement and collection of SG payments from employers, the Government has introduced various measures including directing employers to make payment, introducing criminal penalties for failure to comply with such directions, etc. These measures are intended to apply to SG payment due on or after 1 July 2018 – which practically means it applies to SG payments from 1 April 2018 onwards.

Therefore, in combination these measures are providing employees with a one-off opportunity to correct any SG errors occurring up to 31 March 2018, but equally are imposing stronger enforcement to ensure employers meet future SG obligations.

Note: SG shortfalls that become payable on or after 1 July 2018 are not covered by the Amnesty.

Clearly, employers should take necessary actions to ensure compliance with their SG obligations (now and going forward) and, where applicable, to take advantage of the Amnesty.

Each of these measures is considered in more detail below.

SGC Amnesty

On 24 May 2018, the Minister for Revenue and Financial Services announced the commencement of a 12-month Superannuation Guarantee Amnesty (the Amnesty).

The Amnesty is a one-off opportunity for employers to self-correct past SG non-compliance without penalty.

Subject to the passage of legislation, the Amnesty will be available from 24 May 2018 to 23 May 2019.

Amnesty basics

Under the Amnesty, employers who are not currently under audit are able to voluntarily disclose to the ATO previously undeclared SG shortfalls relating to periods from 1 July 1992 to 31 March 2018 and make payments to satisfy the shortfall. Note: the Amnesty is not available in relation to SG shortfalls that relate to the periods starting on or after 1 April 2018.

Employers who voluntarily disclose under the Amnesty will:

  • not be liable for the administration component and penalties that would otherwise apply to late SG payments; and
  • be able to claim deductions for the payments made in the propose 12-month Amnesty period.

Whilst disclosing under the Amnesty will require employers to pay all employee entitlements and the nominal interest charge applied under the SG charge rules, employers will be able to claim a deduction for the SG payments – something that is not currently permitted under the SGC rules.

While the Amnesty is expected to be available from 24 May 2018 to 23 May 2019, there is no requirement for employers to take advantage of the Amnesty. However, the ATO has warned that employers who have undeclared SG shortfalls and who do not take advantage of the Amnesty may face higher penalties in the future if they are investigated.

In addition, there are circumstances where an employer can lose access to the Amnesty.

Status of the legislation

The Legislation to give effect to the Amnesty (Treasury Laws Amendment (2018 Superannuation measures No. 1) Bill 2018) was introduced into Parliament on 24 May 2018.

The ATO has confirmed that if the Amnesty is not passed but employers disclose SG shortfalls on the expectation that the Amnesty would be available, the following would apply:

  • contributions and payments made will not be tax-deductible;
  • any self-assessments will need to be amended to include the administration component;
  • the administration component will need to be paid;
  • the normal penalties will be imposed with current remission policies applied.

Next steps

Employers should review their records to ensure that they have fully complied with their SG obligations. As errors in controls can lead to inadvertent deficiencies in SG, it is worth employers undertaking a review regardless of whether their payroll/superannuation functions is in-house or external.

Where deficiencies are found, employers should consider whether to take advantage of this Amnesty.

SGC Enforcement and Collection – more power to the ATO

To improve the current enforcement and collection of SG payments from employers, on 28 March 2018, the Government introduced Treasury Laws Amendment (2018 Measures No 4) Bill 2018 (Bill). Once enacted, the proposed measures will (amongst other things):

  • allow the ATO to issue directions to employers to pay their outstanding SGC liability and undertake SG education courses (SGC direction);
  • introduce criminal penalties for failure to comply with a direction to pay the unpaid SGC including up to 12 months imprisonment;
  • strengthen the integrity of the director penalty provisions; and
  • allow the ATO to disclose more information about SG non-compliance to affected employees.

The proposed law in relation to the SGC direction will apply to SGC amount that first becomes payable on or after 1 July 2018. Practically, this means employers who fail to meet their SG obligations for the April 2018 to June 2018 quarter may expose themselves to the new enforcement and collection power of the ATO.

SGC Direction

Under the proposed Bill, if the ATO is satisfied that an employer has failed to comply with their SG obligations the ATO will now be able to compel the employer to meet their SGC obligations by way of issuing a further notice (otherwise known as a direction). The direction contains a number of particulars including the outstanding SGC liability or an estimate thereof and the period within which the employer must comply with the direction. This period is generally 21 days after the day the direction is issued to the employer. Employers who fail to comply with the direction may leave themselves exposed to administrative and/or criminal penalties. The maximum administrative penalty for the offence is 50 penalty units, imprisonment for 12 months, or both. This is a separate offence and is in addition to the existing administrative penalties as outlined above.

Effect of underlying liability being reduced or ceasing to exist

Where the underlying SGC liability for which the direction relates is discharged before the period specified in the direction, the amount of SGC payable under that direction would also be reduced accordingly.

An employer (who has been issued with a direction) is still required to pay any remaining SGC liability for which the direction relates by the period specified in the direction. Failure to do so can result in administrative and/or criminal penalties as outlined above.

Where the underlying SGC liability ceases to exist before the end of the period for which the employer is required to comply with the direction, the direction will automatically be revoked. An example of a circumstance where the underlying SGC liability will cease to exist is where the employer is successful in its objection to the underlying liability itself (refer below).

It is important to note that the reduction or cessation of the underlying SGC liability itself must occur within the period in which the employer is required to comply with the direction. This means that an employer may still commit an offence for not complying with a direction even where the related liability is reduced or ceases to exist after the period specified in the direction.

Taxation objection and extension of period

If an employer is dissatisfied with a decision of the ATO to give a direction, the employer can object to the direction being issued or alternatively, object to the underlying SGC liability itself. The objection must be made before the period specified in the direction in which case, the period for compliance with the direction will be automatically extended.

An example provided by the relevant Explanatory Memorandum is as follows:

‘Example 1.3 – extension of period to comply with direction

On 13 September 2019, the Commissioner gave Chapman Co a direction to pay superannuation guarantee charge of $5,000 for the quarter ending 31 March 2019, by 5 October 2019. On 30 September 2019, Chapman Co objects to that assessment. The objection is disallowed on 22 October 2019. Chapman Co decides not to seek further review of this decision. The period in which Chapman Co must comply with the direction to pay is extended by 38 days to 12 November 2019.’

As noted above, the period within which an employer must comply with the direction is generally at least 21 days after the day the direction is given. Hence, an employer has 21 days from when the direction is issued to lodge the relevant objection.

The proposed law in relation to the SGC direction will apply to SGC amount that first becomes payable on or after 1 July 2018. This means employers who fail to meet their SG obligations for the April to June quarter may expose themselves to the new the law once enacted. Clearly, employers should take necessary actions to ensure compliance with their SG obligations (now and going forward) given the new SG compliance powers of the ATO.

Editor’s note: If you are looking for assistance in relation to reviewing your superannuation processes and payments, or preparing an amnesty application, please do not hesitate to contact TaxEd – we would be pleased to help.

Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.