It is time for employers to review their superannuation payments.
The Superannuation Guarantee amnesty ends in approximately five weeks on 7 September 2020. The Government have suggested that no extension will be offered.
We recommend all employers review their prior superannuation guarantee compliance to take advantage of the amnesty. This is a one-off opportunity to avoid severe penalties and voluntarily pay your unpaid superannuation guarantee (being compulsory employer superannuation).
As outlined in a previous article, not reporting during the amnesty will cost an employer an additional amount of up to 230% of the initial underpayment of superannuation (excluding the impact of interest and administrative charges). This is illustrated below:
The above costs do not take into account other penalties, such as the Superannuation Guarantee Charge (“SGC”) being calculated on all wages, not just ordinary time earnings.
- How the Superannuation Guarantee Amnesty will work
- How to apply
- Risks to employers
- Common Superannuation Guarantee errors
- COVID-19 and the Amnesty
- Key takeaway
Eligible employers who voluntarily disclose undeclared superannuation guarantee shortfalls benefit from:
- Not being liable to pay the $20 per employee administration fee;
- The Part 7 penalty which is a maximum penalty of 200% of the SGC payable will not be applied; and
- All SGC payments made before 7 September 2020 will be tax deductible.
How the Superannuation Guarantee Amnesty will work
Employers are eligible to voluntarily disclose unpaid superannuation guarantee under the amnesty until 11:59pm on 7 September 2020 where the following is met:
- The voluntary disclosure is made for superannuation guarantee periods from 1 July 1992 up to 31 March 2018 within the amnesty period (24 May 2018 to 7 September 2020);
- The disclosed superannuation guarantee has not previously been disclosed to the Australian Taxation Office (“ATO”); and
- The employer is not subject to an audit on their superannuation guarantee payments for the relevant periods.
Payment of the shortfall SGC is essential for employers to remain eligible for the amnesty, even if that payment is by a payment plan organised with the ATO.
Where an employer is on a payment plan, only the payments made during the amnesty period are tax deductible.
How to apply
To access the Superannuation Guarantee Amnesty now, the employer is required to:
- Calculate the amount payable, being the superannuation guarantee shortfall and interest;
- Lodge the approved ‘SG amnesty form’ for each applicable quarter; and
- Make payment or adhere to a payment arrangement made with the ATO.
In the case of disclosures already made voluntarily between 24 May 2018 and 6 March 2020, the ATO is retrospectively applying the amnesty and refunding previously paid administration fees. We have already seen the ATO start the process of issuing amended assessments and refunds.
In addition, the amount of the SGC already paid is now deductible. Some employers may have to amend their 2018 or 2019 income tax returns to claim a deduction for previously non-deductible super, which could result in further refunds for some employers. The eligible superannuation payments made will be deductible in the year paid.
Risks to employers
Once the Superannuation Guarantee Amnesty ends, we expect to see increased ATO audit activity surrounding employer obligations to pay superannuation guarantee.
Employers who have unpaid superannuation guarantee and who do not utilise the amnesty may face higher penalties in the future. The ability of the ATO to reduce the Part 7 penalty below 100% will be limited for assessments made without a disclosure because of investigation by the ATO.
With single touch payroll, improved technology and data matching, it is becoming increasingly easy for the ATO to recognise inadvertent superannuation guarantee errors. These errors may be as small as payments made one or two days late due to public holidays or payroll staff on leave. There is a risk that they ATO commences a superannuation guarantee review based on current data matching results and expands the review period to prior years.
Common Superannuation Guarantee errors
The amnesty provides a platform for employers to voluntarily disclose unpaid superannuation where they were not aware they had to pay superannuation guarantee or for inadvertent errors. Commonly we see employers miss superannuation guarantee payments for:
- Payments made to sole trader contractors, mainly paid for their labour;
- Overtime that is considered ordinary time earnings;
- Back payments made to employees;
- Allowances; and
- Termination payments in lieu of notice.
COVID-19 and the Amnesty
As COVID-19 is now affecting many businesses, making these declarations and payments now may not be ideal due to the current conditions. The ATO have promoted their ability to issue payment plans for those impacted by the pandemic with regards to superannuation shortfalls declared under the amnesty by 7 September 2020. Although, only payments made until 7 September 2020 are tax deductible by law.
If payments cannot be made at all the employer risks their disclosure being disqualified under the amnesty and losing some potential benefits. However, it is worth remembering that the risks of not disclosing under the amnesty can bring about much higher penalties in the future. In this situation we still highly recommend affected businesses to make disclosures under the amnesty and discuss your situation with the ATO afterward to avoid the risks of higher penalties.
The Superannuation Guarantee Amnesty provides significant incentives for employers to voluntarily disclose historical unpaid superannuation guarantee. Although the current business climate is uncertain and attention is understandably focused elsewhere, there are still benefits to be gained by reviewing superannuation guarantee records now and making any applicable disclosures before the opportunity to do so ends on 7 September 2020.