Given the Government’s recent announcement that many employees will be eligible to access up to $20,000 of their superannuation early due to the impacts of the COVID-19 pandemic, more individuals will be closely analysing their superannuation balances, resulting in an increasing number of potential questions being asked of employers regarding historical employee super guarantee contributions.
Whenever an employee makes a direct enquiry to the ATO of a super guarantee shortfall, the Commissioner of Taxation will always follow through with an investigation of the employer. This could open up the employer to unnecessary costs, and exposure to potentially severe penalties of up to 200% on top of any super guarantee shortfall that is discovered under the ATO’s examination.
This highlights the importance for employers to take advantage of the recently legislated one-off Superannuation Guarantee Amnesty which is available for 6 months from 6 March 2020. This Amnesty was first announced by the Coalition in 2018 to encourage employers to satisfy any unpaid super guarantee for quarters that occurred between 1 July 1992 to 31 March 2018.
The Amnesty will encourage employers to disclose unpaid super guarantee by making it tax deductible to the employer, provided the employer has paid the super guarantee shortfall and interest by 7 September 2020. Significantly reduced penalties will apply for employers who correctly apply the Amnesty.
To be eligible for the Amnesty, an employer must make disclosure before 7 September 2020, be disclosing to the Commissioner for the first time, and use the approved form available from the ATO website here.
The Amnesty only applies to unpaid superannuation guarantee relating to quarters between 1 July 1992 and 31 March 2018. The Commissioner must not have previously examined, or provided intent to examine, the employer’s super guarantee compliance for the quarter they are disclosing.
Warning: there are significantly higher penalties after the Amnesty period has ended, where the ATO identifies super guarantee non-compliance and the employer did not make voluntary disclosure under the Amnesty. Penalties will be equivalent to at least 100% of the amount of superannuation guarantee payable.
There remain circumstances where the ATO’s ability to remit penalties for super guarantee non-compliance will continue to apply, such as where ‘exceptional circumstances’ exist.
What if payment can’t be made? What if my business is struggling?
Given these current tumultuous and uncertain times, employers may be faced with cash flow issues to satisfy the full requirements of the Amnesty. It is possible to enter into a payment arrangement with the ATO to meet the unpaid super liability over the next few months and still apply the Amnesty – however, tax deductibility will be limited to the amount that is paid to the ATO by 7 September 2020.
Ordinarily, where an employer fails to pay their super guarantee within 28 days after the end of a financial quarter to a complying regulated superannuation fund, the employer:
- Will not be able to claim a tax deduction for the super guarantee contribution; and
- Will be liable to pay the superannuation guarantee charge (SGC) – which comprises the shortfall amount, a nominal interest component, and an administrative component.
Where an employer fails to pay the SGC to the ATO and lodge an SGC statement within one month and 28 days after the end of the respective quarter:
- A penalty of up to 200% of the underlying SGC could be imposed; and
- A general interest charge can apply on the overall outstanding liability.
Company directors are also personally liable where the company has failed to meet its super guarantee obligations.
The ATO takes super guarantee non-compliance seriously, and the above penalties are testament to their approach.
Employers are strongly encouraged to review their existing arrangements now and to take full advantage of the Amnesty before the 7 September 2020 deadline. This may include review of certain employment arrangements, such as contractors who have been employed ‘wholly or principally’ for their labour but were inadvertently not treated as an employee for super guarantee purposes.
Impacted employers making use of the Amnesty now is crucial, as increasingly more employees look to accessing their superannuation during these uncertain times. Super guarantee non-compliance that is identified by the ATO after 7 September 2020 will be subject to minimum penalties of 100% of the shortfall and opens up the employer to further ATO review (which could extend to other areas of employment tax, such as FBT and PAYGW).