On Wednesday 18 September 2019, the Assistant Treasurer, Mr. Michael Sukkar, introduced an unexpected but welcome Bill to the House of Representatives.
The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, proposes to re-introduce the superannuation guarantee amnesty previously announced in May 2018, but not legislated. The intent of the legislation was to encourage employers with historical superannuation guarantee (SG) compliance to come forward and disclose SG shortfalls.
The proposed legislation will have retrospective application and if passed without amendment, will apply from the original amnesty announcement date of 24 May 2018.
It may be some time before we know if the Bill will pass, however introduction of the proposed legislation is a positive sign and the Federal Government should be commended for taking positive steps to recover employee superannuation entitlements.
The Bill was swiftly referred to the Senate Economics Legislation Committee for review and report, with the report due by 7 November 2019. Until the report has been issued, we won’t know if the Senate Economics Committee will pass the Bill or if it will recommend amendments be made.
Superannuation Guarantee Amnesty Period
The proposed amnesty covers superannuation guarantee shortfalls for the quarter starting 1 July 1992 through to the quarter starting 1 January 2018. The amnesty period (for reporting and payment) will commence on 24 May 2018 and end six months from the date the Bill receives Royal Assent.
The amnesty period does not cover SG shortfall amounts relating to periods after the quarter starting 1 January 2018. If an employer is aware of SG shortfalls for this period, disclosure in the required form is still required.
Superannuation Guarantee Compliance – Current Law
Employers are required to pay compulsory superannuation guarantee amount in relation to their employees (subject to certain conditions).
The current minimum SG rate is 9.5% of ordinary time earnings. If an employer fails to report and pay compulsory SG amounts by the due date, the employer will be liable for SG charge, which is made up of the following amounts:
- SG shortfall;
- $20 administration fee per employee, per quarter, where there is a shortfall and
- Nominal interest.
The employer may also be liable for Part 7 penalties. Under existing legislation, Part 7 penalties apply where an employer has failed or refused to provide a statement or information in respect of SG shortfalls.
Part 7 penalties can be up to 200% of the underlying SG amount. The Commissioner of Taxation (Commissioner) currently has the power to remit Part 7 penalties, however, under the proposed legislation, the power to remit will be restricted to a minimum of 100% of the SG shortfall. SG shortfalls are generally not tax-deductible.
Employers who do not pay the SG shortfall amounts reported under the proposed amnesty, or do not enter into and comply with a payment plan in respect of shortfall amounts, will not be eligible for the amnesty, even if they report the amounts during the amnesty period.
Employer Confusion - To act or not to act
There was confusion when the amnesty was originally announced regarding whether employers should withhold reporting SG non-compliance until the legislation was passed.
It is critical for employers to understand that the requirement to comply with compulsory SG requirements is law and reporting historical SG non-compliance is not optional. The amnesty merely provides employers the opportunity to disclose and pay SG shortfalls with once-off access to certain concessions including:
- A once-off tax deduction for the SG shortfall (for eligible amounts reported and paid during the amnesty period);
- Waiver of the $20 administration fee payable as part of the SG charge (the administration fee is charged per employee, per SG period where there is a shortfall);
- Remission of Part 7 penalties.
Employers who do not come forward to report SG shortfall amounts will face significant penalties if shortfalls are identified as part of an ATO review or audit; even more so where it is established the employer was aware of the non-compliance and intentionally withheld disclosure.
Under the proposed Bill, where an employer did not make a voluntary disclosure of SG shortfall amounts during the amnesty period, the Commissioner will not be able to remit Part 7 penalties below 100% of the SG payable, unless there are exceptional circumstances.
Due date for payment of compulsory superannuation guarantee – Ongoing Compliance
Compulsory SG amounts are required to be paid by the employer, and received by the employee’s complying superannuation fund, within 28 days of the end of the relevant quarter. Employers are advised to ensure there is adequate time for the payment of employee SG amounts to be received and processed by the employee’s complying superannuation fund. Employers need to be mindful that the fact the amount has been debited from the employer bank account does not mean the compulsory SG requirements have been met.
The payment MUST also be received and processed to the employee member account by the relevant complying superannuation fund. This is particularly relevant when using the small business clearing house, which may require additional time to process employee SG payments.
SG payments that are not received by the employee complying superannuation fund by the due date and processed to the employee’s member account may be deemed to be non-compliant. Employers in this situation, even where the payment is one day late, will be required to lodge a SG charge statement with the ATO.
With recent legislative change strengthening the power of the Commissioner to recover unpaid superannuation and the introduction of a criminal penalty for employers who refuse to comply with a direction to pay compulsory SGC, the proposed SG amnesty is an ideal opportunity for employers to review practices and ensure compliance with compulsory SG obligations.
Where non-compliance is identified, immediate action should be taken to disclose and pay outstanding amounts with the ATO.
The re-introduction of the proposed superannuation amnesty is a positive step by the Federal Government, we hope one that will be supported by Parliament. The amnesty is not intended to provide an opportunity for recalcitrant employers to obtain a once-off tax deduction for non-compliant payments, it is an opportunity for employers to review their SG compliance and come forward where non-compliance is identified.
Employees will be the big winners under the proposed amnesty as it is an opportunity for employers to come forward and make payment of amounts employees are a) legally entitled to, and b) will rely on for their future retirement.
In our view, SG legislation needs an overhaul.
The current measures designed to deter and punish employers for non-compliance have little to no flexibility and in some circumstances, make it extremely difficult for employers to report shortfalls to the ATO.
It is our view that payments should be recognised when paid by the employer, not received by the employee complying superannuation fund as employers have no control over funds once they have been debited from their business bank accounts.
Under current law, compulsory SG payments may become non-compliant due to circumstances beyond the control of the employer despite the employer taking all reasonable steps to ensure payments are made on time. Increased flexibility is also needed where non-compliance is due to circumstances beyond the control of the employer (e.g. natural disaster, internet outages etc).
While the proposed amnesty is a positive step, further and more permanent legislative change is required in this area. Compliance with such an important feature of Australian tax legislation should not be so complex.