New legislation provides incentive through a 12-month reprieve.
Payment of superannuation employee entitlements and enforcement measures against directors who fail to meet their obligations is a topic we cover extensively in our Guide to Corporate Insolvency and previous 'Worrells – On the Pulse' articles.
When a business becomes financially distressed, one of the most common liabilities directors fail to pay is employee entitlements, which includes superannuation. While employees become priority creditors in an external administration, this priority does not extend to superannuation and large penalties may apply for non-payment.
Regulatory bodies have also shown an increased focus on employer obligations with respect to superannuation entitlements and the enforcement of the director penalty provisions such as issuing director penalty notices (DPNs).
For advisors that have clients who may be lax with adhering to their obligations, now is their chance to get up to date without incurring significant penalties.
On 24 May 2018, the Minister for Revenue and Financial Services, The Hon Kelly O'Dwyer MP, published a press release detailing the Government's plan to combat the non-payment of workers' superannuation. It announces new legislation1 that includes a once off, 12-month amnesty for employers with a history of unpaid superannuation guarantee amounts to allow time for these to be brought up to date voluntarily. Currently, the Australian Taxation Office (ATO) charges a superannuation guarantee charge (SGC) if superannuation is not paid into the correct fund by the due date, which includes 10 percent interest on the outstanding amounts; an administration fee of $20 per employee, per quarter; and shortfall amounts calculated on an employee's salary or wages.
Designed to encourage employers and/or directors to come forward, step up and "do the right thing by their employees", those who choose not to take advantage of this reprieve will face harsher measures when caught. (Reported to be a minimum of 50 percent added to the SGC.) While employers will still have to pay the 'nominal interest' (currently 10 percent under SGC explained above) that employees would have accrued in their superannuation fund, the 12-month amnesty sets aside the ATO penalties—for overdue payment.
It might first appear that employers saving (at a minimum) on the administration fee of $20 per employee, per quarter might not be much of an incentive, however as you dig deeper into the ATO's penalties, you'll find:
- General interest charge—applies when a SGC statement is lodged but not paid. It's calculated for the overdue period, compounding daily and is tax-deductible in that year.
- Administrative penalty—for false or misleading statement and the "base penalty amount" is 75 percent of the shortfall.
- Failing to keep records—at minimum 30 penalty units, which ranges from $110-210 per penalty unit.
- Part 7 penalty—applies when a SGC statement is not provided when requested by the ATO (e.g. during an audit). Maximum penalty is 200 percent of the amount of the charge payable.
- Failing to pass on a TFN (tax file number)—applies when not provided to employee's superannuation fund (or retirement savings account). Ten penalty units in each case.
In one Worrells administration, we reconstructed records that culminated in—for one quarter alone—a Part 7 penalty of $31,000, nominal interest of $47,000, and the administration fee for 199 employees totalled $4,000. This amounts to a substantial sum totalling $82,000 plus the actual superannuation amounts owing.
The new legislation also gives the ATO a new set of powers, increases their recovery powers by gaining the ability to obtain court ordered penalties, strengthening DPNs and the using security bonds for employers with a history of offending or who are considered 'high risk'.
1The Treasury Laws Amendment (Superannuation 2018 Measures) Bill 2018
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.