The Government's superannuation amnesty legislation ( the Treasury Laws Amendment (Recovering Unpaid Superannuation) Act) finally passed Parliament in February and became law from 6 March 2020.
This follows on from the false start in 2018 when an amnesty was announced, but the legislation did not pass Parliament, and some keen employers who had disclosed underpayments on the faith of the announcement had to have ATO discretion applied to avoid penalty, we covered this in one of our previous blogs. As the new legislation implements the previously announced amnesty, it only applies to superannuation underpayments up to 1 April 2018, NOT underpayments that occurred after that date.
The amnesty will apply to disclosures made from 24 May 2018 (the
date the amnesty was originally announced) and will be open until 7
September 2020. Applications for amnesty must be made by that
The amnesty only applies to employers who voluntarily disclose a shortfall in superannuation guarantee contributions during the amnesty period – underpayments already identified, or identified by the ATO during the amnesty period, but not voluntarily reported, will not get the benefit of the amnesty.
To take advantage of the amnesty, the employer will have to pay:
- the amount of the underpayment; and,
- the 10% interest charge (to compensate for foregone investment income on the unpaid superannuation contribution).
The benefits of the amnesty are that the employer:
- will not have to pay a penalty (usually 100% of the underpayment);
- will not have to pay the usual administrative charge ($20 per affected employee per quarter); and,
- will be able to claim the payment as a deductible expense (usually, payments of unpaid superannuation are not deductible).
The ATO is open to agreeing on payment plans with employers who cannot pay immediately for reasons connected to Covid19 (but payments after 7 September will not be tax deductible).
As well as the carrot of avoiding these additional liabilities, there is a stick as well: after the amnesty, the default penalty will be 200% of the amount underpaid (with no scope for remission below 100% penalty) in periods before 1 April 2018.
The amnesty is a once-only opportunity for employers to fix up past superannuation errors or defaults at much reduced cost. Common errors include:
- misconceptions about the scope of "ordinary time earnings" as the basis for calculation: see the ATO's checklist of what OTE includes and does not include;
- not paying super contributions for contractors who essentially provide labour: engaging a worker as an independent contractor does not of itself exclude liability to pay superannuation. Where the contractor is engaged as an individual (not through a company):
- under a verbal or written contract that is wholly or principally for their labour (more than half the dollar value of the contract is for their labour);
- for their personal labour and skills – which may include physical labour, mental effort or artistic effort – on a time basis, rather than paid to achieve a particular result; and,
- to perform the work personally – that is, they must not delegate.
Then SGC is payable, on top of the contract fee. This is often overlooked altogether. Or there may be an agreement or understanding, often vague, that the worker will look after their own super (in the same way as they look after their own tax and remit GST). But such an agreement or understanding cannot override the legal obligation to pay superannuation.
It is strongly recommended that employers review their history regarding superannuation payments, including any OTE issues and contracting arrangements, and prepare to make disclosure as soon as possible, if they want to take advantage of the amnesty.
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.