Lack of awareness can cost big—personally!
Beware directors, you need to know how critical it is to lodge and pay your company’s employee superannuation obligations—on time.
If super guarantee obligations are not complied with by lodging and paying your super guarantee on time, then you are at risk of the Australian Taxation Office (ATO) auditing your company to determine the superannuation guarantee obligation and subsequent superannuation guarantee charge.
An ATO audit results in companies receiving default assessment notices for every quarter that a super guarantee statement is not lodged nor super guarantee contributions being paid by the due date. Default assessments determine the amount of employee superannuation that must be paid. And they will be much more than if they were paid in the first place due to administration fees, interest charges etc.
The risk of the superannuation debt increases exponentially if your business pays overtime as common practice (e.g. the transport or hospitality industries).
As a director you must be aware that superannuation law can make directors personally liable for the amount on a default assessment notice, described as the ‘superannuation guarantee charge’.
Worrells Liquidation Example
This company operated in the transport industry with a workforce comprising of 52 employees, peaking at 90 employees during the five-year period before it went into liquidation. The nature of the transport business meant that overtime was paid to most employees.
Prior to our appointment, the ATO had audited the company’s superannuation obligations due to non-compliance. We reviewed the ATO’s audit and subsequent default assessment notices—for the full five-year period before our appointment. In this case, that equates to 20 quarters of non-lodgement and non-payment of superannuation obligations!
The directors believed the company owed approximately $200,000 in employee superannuation. They formed this view based upon on the employees’ ordinary time earnings (i.e. excluding overtime) and had not considered the overdue payment penalties that apply.
The audit resulted in a superannuation guarantee charge liability of $861,000, significantly exceeding the directors’ estimate of $200,000. Due to the non-payment of the superannuation guarantee charge, the directors found themselves personally liable to pay this debt. As a result, the directors placed the company into liquidation, and one of the two directors has declared bankruptcy. I suspect the other director may not avoid bankruptcy either.
The ATO’s default assessments were based on:
- Employee’s ordinary time earnings and overtime (total wages paid).
- An administration fee per employee per quarter.
- Interest for the outstanding amounts owed up to the payment date (currently at 10%).
- No deduction for partial super contribution payments made directly to employee funds outside the due dates. (These partial payments would need to be part of any ‘objection’ to the ATO default assessment, which is a costly process).
Key points for advisors to keep in mind:
- A company’s super guarantee is calculated on an employee’s ordinary time earnings, as long as its paid by the due date and into the employees nominated superannuation fund.
- If the super guarantee is not lodged and paid on time, directors are personally liable for a superannuation guarantee charge. The ATO can audit the company to determine the company’s superannuation guarantee obligation and subsequent charge.
- Directors automatically become personally liable for any past due, unpaid superannuation guarantee charge. Directors do not need to receive a director penalty notice (DPN) to be liable.
- For directors operating in industries where overtime is prevalent, they need to be aware that superannuation guarantee charge is payable on any overtime in addition to the base wage.
Options when receiving an audit notice or default assessments
- Lodge all outstanding super guarantee statements to reduce any penalties.
- If you dispute the default assessments amounts, lodge an objection with the ATO, if still within the required 60-day timeframe.
- Contact your local Worrells Partner to seek advice.
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.