On 24 May 2018 the Federal Government announced their intention to provide a one-off 12 month amnesty to allow employers who have undeclared superannuation guarantee charge (SGC) obligations to “wipe the slate clean” on a concessional basis. It is worth noting this amnesty is not yet law.
What is the SGC?
The SGC is essentially a penalty intended to provide a strong incentive for employers to make super contributions for their employees by the due date. Currently super contributions of at least 9.5% of each employee’s ordinary time earnings are due to be paid by the 28th day after the end of each quarter.
If an employer fails to make a contribution of at least the required percentage by the due date in respect of any employee, the employer becomes liable to lodge a SG statement and pay:
- SG shortfall, calculated as the employee’s total salary and wages for the quarter multiplied by the difference between 9.5% and the actual percentage of super contributions provided;
- a nominal interest component, calculated at 10% from the start of the quarter, and
- an administration component for the quarter calculated as $20 per employee per quarter.
The SG statement and payment of the SG charge are due by the 28th day of the second month after the end of the quarter.
Unlike actual super contributions, payment of the SGC is not tax deductible. Failure to lodge the SG statement by the due date can expose the employer to an additional non-deductible administrative penalty of up 200% of SGC amount payable. General interest charge is payable on any unpaid amount.
The non-deductible SGC is still payable even if an employer makes the required super contributions after the due date. However, in some circumstances an employer can lodge a form with the ATO which could allow them to offset a later contribution against the nominal interest component and SG shortfall in respect of the same employee. The late contributions are treated as not deductible and cannot be taken into account for any other quarter, and any late lodgement penalties will still apply to the full amount of the initial SGC before any offset.
Terms of the Amnesty
Given how high the penalties for the SGC can be, the terms of the proposed amnesty are generous. If an employer qualifies for the amnesty:
- the SG shortfall will still be payable, but payments made in the amnesty period will be tax deductible;
- the notional interest component and any general interest charge will still be payable;
- the $20 per employee per quarter administrative component will be waived, and
- the threat of the 200% administrative penalty for late lodgement is removed.
An employer will qualify for the amnesty in relation to the employer’s SG shortfall for a quarter if:
- during the amnesty period (24 May 2018 to 23 May 2019) the employer discloses to the ATO, in the approved form (which is basically a special SG statement), the information required by the ATO;
- the SG shortfall is in respect of any quarter from 1 July 1992 to March 2018, and
- the employer has not been previously informed by the ATO that it is examining (or intends to examine) the employer’s SG compliance for the relevant quarter.
An employer will be disqualified from the benefits of the amnesty if it fails to:
- pay the ATO the amounts of SGC, or
- enter into a payment arrangement in relation to that amount, or
- comply with such a payment arrangement.
The amnesty is not available in relation to SG shortfall amounts that have been previously disclosed to the ATO (but can apply to the disclosure of additional amounts of SG shortfall of the same quarter).
Employers face a difficult decision until the legislation implementing the amnesty is passed. The ATO has no power to grant the benefits of the amnesty until that time, but there is also the risk that in the meantime the ATO might commence an audit of an employer’s SGC obligations, which would have the effect of making the employer ineligible for the amnesty. Ultimate passage of the legislation will be depend on the attitudes of the the Labor Party and minor parties in the Senate.
According to the Explanatory Memorandum accompanying the legislation, where the ATO identifies an employer that has an undisclosed SG shortfall after the amnesty concludes, and the employer could have come forward during the amnesty but did not do so, in general a minimum level of administrative penalty of 50% will be applied.
Payment of the SG Charge
Where an employer is able to make the outstanding contributions directly to an employee’s super fund, and does not have an existing SG assessment for the relevant quarter, the employer may choose to contribute the employee’s individual shortfall and nominal interest directly to the employee’s super fund and elect to offset the contributions against their liability on the amnesty SG statement. Employers who have an existing SGC assessment for the quarter, or who are otherwise unable to contribute directly to the employee’s super fund, need to pay the SGC to the ATO. Any general interest charge must also be paid to the ATO.
Employers who have difficulty paying the SGC by the due date can negotiate with the ATO to pay the amount under a payment arrangement.
Division 293 Additional Tax
Contributions made to an employee’s super fund as a result of the amnesty will not be counted in calculating the employee’s concessional contributions for the purposes of calculating liability for additional tax under Division 293.
Other Weapons in the ATO’s Armoury
You should also be aware of other provisions which may be used by the ATO to enforce SGC obligations.
Single Touch Payroll
Single Touch Payroll reporting requires the real-time reporting to the ATO of salary and wages and ordinary time earnings, amounts withheld, and super contributions, at the time these amounts are paid or withheld by employers. Currently, the Single Touch Payroll rules only apply to employers who have 20 or more employees. From 1 July 2019, all employers, regardless of size, will be required to notify the ATO of payments to and withholdings from employees under the Single Touch Payroll rules. Any non-payment of super contributions will be clearly visible to the ATO.
Director Penalty Regime
The director penalty regime operates to impose upon the directors of companies a personal liability equal to the company’s unpaid SGC or PAYG withholding amounts. A penalty equal to the amount of SGC is automatically imposed (and due and payable) on all directors at the end of the day on which the SG statement for the quarter must be lodged. If no SG statement is lodged, the ATO has the power to make an estimate of the unpaid SGC for the quarter, and recover the estimated amount from any or all directors 21 days after servicing a director penalty notice on them.
There is currently other legislation before Parliament which will allow the ATO to issue a written direction to an employer requiring payment of the actual or an estimated amount of SGC. Failure to comply with the direction will be a criminal offence, and may be punished by a fine of up to 50 penalty units ($6,000), 12 month imprisonment, or both. This is intended to be used in cases of ongoing and intentional disregard of SGC obligations.
How can Nexia Edwards Marshall NT help you?
Please contact your Nexia Edwards Marshall Advisor if you wish to discuss your SGC obligations or think you might wish to take advantage of the amnesty.
The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall NT. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall NT Adviser.