An important Bill introducing a Superannuation Guarantee amnesty period was passed by both Houses of Parliament yesterday and is currently awaiting Royal Assent. The amnesty period allows for the correction of historic underpayments of superannuation from 1992 until March 2018. The amnesty period will last for 6 months from the date of Royal Assent and will be followed by harsh penalties.
What does the amnesty mean for employers?
The amnesty will start on the date that the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 is given Royal Assent and will end after six months. After the amnesty ends, the penalties for historical underpayment of superannuation guarantee will be more severe.
Currently, employers with historical underpayments are liable for the super guarantee charge (“SGC”). This charge is made up of the shortfall amount of superannuation guarantee, an interest charge and administration fees ($20 per employer, per quarter). The total amount of the SGC is currently non-deductible for employers. An additional charge known as the Part 7 penalty can be imposed at a rate of up to 200% of the initial SGC for late lodgement of SGC forms. The Commissioner has the ability to reduce the Part 7 penalty, but this ability will be considerably limited after the amnesty period ends.
Under the amnesty, employers will not be required to pay the administration fees and Part 7 penalty. In addition, the total amount of the SGC will be tax deductible to the employer in the year that it is paid (i.e. during the amnesty period).
What are the potential costs of underpayment?
If an employer has a historic underpayment of superannuation guarantee and does not report during the amnesty period, the ATO will not be able to reduce the Part 7 penalty below 100% of the initial SGC. Excluding the impact of the interest and administrative charges, not reporting during the amnesty will cost an employer an additional amount of up to 230% of the initial underpayment of superannuation. This is illustrated below:
|During Amnesty Period||After Amnesty Period|
|Shortfall amount owed||100%||100%|
|Possible Part 7 Penalty (between 100% & 200% of the SGC)||–||100 – 200%|
|(Benefit) / Loss of tax deduction (assuming a tax rate of 30%)||(30%)||30%|
|Net Cost of Underpayment||70%||230% – 330%|
The above costs do not take into account other penalties, such as SGC being calculated on all wages, not just ordinary time earnings.
How do I take advantage of the amnesty?
To qualify for the amnesty:
- The disclosure must be made during the amnesty period (i.e. the 6 months following Royal Assent);
- The underpayment must be disclosed to the ATO in the approved form, before any review or audit is undertaken, and must not have previously been disclosed to the ATO; and
- Relate to an underpayment from 1 July 1992 until March 2018.
Employers should review prior superannuation guarantee compliance, including a review of payments made to contractors, as the amnesty will provide significant savings on prior non-compliance.