On 18 September 2019, the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Bill) was introduced into Parliament. The Bill seeks to re-introduce a superannuation guarantee amnesty, following the previous amnesty legislation lapsing due to the Federal Election being called in April 2019.
Under the Bill, the amnesty period commences from 24 May 2018 and ends six months after the day the legislation receives Royal Assent. It is critical that employers act now and commence to review their historical superannuation guarantee compliance, to ensure they can make the necessary disclosures and shortfall payments within the amnesty period.
The amnesty will cover all quarters starting 1 July 1992 and ending 31 March 2018. Accordingly, employers who have operated for a number of years will face a significant task of reviewing their historical compliance.
Employers who fail to disclose historical shortfalls during the amnesty period will be subject to significant penalties of up to 200%, with the Commissioner generally losing the power to remit such penalties to below 100%.
The superannuation guarantee regime
Employers are required to contribute a minimum amount of 9.5% of an employee’s ordinary time earnings to the employee’s superannuation fund.
Employers must make these superannuation guarantee payments, which are tax-deductible, by the quarterly due dates. If an employer has not paid the minimum amount within these due dates, the employer will be liable to pay the superannuation guarantee charge (SGC). The SGC is non-deductible and comprises the unpaid superannuation contribution, an administrative component ($20 per employee per quarter) and interest.
Penalties of up to 200% of the unpaid superannuation (‘Part 7 penalties’) can apply where employers fail to provide information to the ATO. However, the Commissioner has the discretion to reduce these penalties to nil, depending on the circumstances.
Conditions to qualify for the amnesty
An employer will qualify for the beneficial treatment under the amnesty if:
- During the amnesty period, the employer discloses information to the ATO regarding the amount of the superannuation guarantee shortfall for the first time;
- The ATO has not previously informed the employer that they are examining, or intend to examine, the employer’s superannuation guarantee compliance; and
- The employer must pay the SGC in respect of a shortfall on or before the day it became payable, or enter into a payment arrangement for that amount.
Amnesty tax benefits for employers
The tax benefits to employers under the amnesty are as follows:
- No administrative component of the SGC will be payable;
- No Part 7 penalties will be imposed in respect of the disclosed shortfalls; and
- Employers can claim tax deductions for payments of the SGC made during the amnesty period. The trap in this benefit is that only payments made during the amnesty period will be deductible – if an employer enters into a payment arrangement with the ATO, any instalment payments made outside of the amnesty period will not qualify for a deduction.
Higher penalties for employers that do not make disclosures
The Commissioner’s discretion to remit Part 7 penalties will be limited where employers with historical shortfalls do not come forward during the amnesty period. The power to remit will be limited to a minimum of 100% of the shortfall, unless the Commissioner is satisfied that ‘exceptional circumstances’ exist, which is generally difficult to demonstrate.
The Explanatory Memorandum gives the examples of a flood which destroys payroll records as ‘exceptional circumstances’, while an employer suffering severe financial hardship following a bushfire not constituting exceptional circumstances.
The Commissioner’s full discretion to remit penalties will be unaffected from the quarter commencing 1 April 2018 and later quarters (such quarters not covered by the amnesty).
How can Rigby Cooke help?
The amnesty will apply to all quarters commencing from 1 July 1992 and ending 31 March 2018. Given the wide coverage of the amnesty, we recommend that employers act now to start reviewing their historical superannuation guarantee compliance.
If employers wait until the Bill receives Royal Assent, they will only have a six-month window in which to review their historical compliance, make necessary disclosures to the ATO, and make full payment of the SGC liability to ensure such payments are tax-deductible.
We often see that employers have superannuation guarantee shortfalls due to errors in calculating employees’ ordinary time earnings, or due to incorrectly classifying an employee as an independent contractor. Given that the distinction between an employer and an independent contractor can be difficult to establish, there is a real risk that an erroneous classification has been made in many instances.
Another trap for employers is the ‘deemed employee’ provisions whereby certain contractors are deemed to be employees for superannuation guarantee purposes, for instance where individuals work under a contract that is wholly or principally for their labour.
Such misclassifications and interpretational errors may be systemic and applied across numerous staff over several years, resulting in significant shortfalls.
We can assist you in the review of your company’s historical compliance and work with you to make necessary disclosures. We note that another incentive to take advantage of the amnesty is that company directors can be made personally liable for superannuation guarantee shortfalls under the director penalty regime.
The Bill is currently before the Senate Economics Legislation Committee for review and report, with the report due by 7 November 2019. The report may recommend that the Bill be passed in its current form or may suggest amendments. We will provide you with an update once the report is released. In the meantime, it would be prudent for employers to commence historical reviews on the basis that the Bill will be legislated in the near future.
|Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
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