The Federal Government has long been concerned with the "superannuation gap". This is the difference between the superannuation guarantee contributions that employers have been paying on behalf of workers and what they are required to pay under the superannuation guarantee regime.
For the six years ended 30 June 2017, the ATO has estimated the superannuation gap at $2.3 billion – an enormous figure given that it is calculated after taking into account the benefit of contributions made as result of ATO audit activity.
What is the Superannuation Guarantee Amnesty?
On Friday 6 March 2020, the Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2019 received Royal Assent. It provides for an amnesty for rectifying superannuation guarantee errors made for periods up to 31 March 2018.
The amnesty period ends on 7 September 2020.
What beneficial treatment is available to employers under the Superannuation Guarantee Amnesty?
Under the superannuation guarantee law, where an employer does not make the required superannuation contributions to their employees' superannuation funds by the 28th day after the end of every quarter they are liable to pay superannuation guarantee charge (SGC) to the ATO.
Unlike superannuation contributions, SGC is not deductible for income tax purposes. Further a $20 administration fee is imposed for each employee in respect of whom superannuation has been underpaid.
In addition, "nominal interest" of 10% per annum is imposed together with the possibility of culpability penalties of up to 200% of the superannuation underpaid.
Employers that make voluntary disclosures during the amnesty period and qualify for the amnesty:
- can claim a tax deduction for the unpaid SGC paid that is actually paid to the ATO by 7 September 2020;
- will not be required to pay the $20 per person per quarter administration fee; and
- will not be subject to any culpability penalties.
What employers must do to qualify for the Superannuation Guarantee Amnesty
To qualify for the amnesty, an employer:
- must voluntarily disclose the SG shortfall to the ATO and the SG shortfall must arise in a period from 1 July 1992 to 31 March 2018;
- must not have been informed by the Commissioner of Taxation (Commissioner) at any time prior to the disclosure, that the Commissioner is examining, or intends to examine, the employer's compliance to pay the SG charge; and
- must provide the information regarding the SG shortfall in the approved SG amnesty form.
Why should employers take advantage of the Superannuation Guarantee Amnesty?
The ATO is continuing to conduct reviews and audits in respect of employers failing to pay their employees' superannuation and will continue to do so once the amnesty is over.
The amnesty represents a one-off opportunity to remediate any underpayments in a way that is financially palatable. The tax deductibility of the amounts paid under the amnesty is a critical feature in achieving that outcome.
What happens after the Superannuation Guarantee Amnesty is over?
Once the amnesty is over, amounts paid as SGC will revert to being non deductible and the administration charge will be imposed.
An important change, however, will occur with culpability penalty.
Whilst the prospect has always existed that a culpability penalty of up to 200% would be imposed, it generally has not been.
Once the amnesty is over a culpability penalty of a minimum of 100% will be imposed on any SGC bill.
The Commissioner of Taxation will have no power to remit the penalty to below 100% unless the Commissioner is satisfied that "exceptional circumstances" prevented the employer disclosing the information relevant to the SG shortfall during the amnesty period.
It is expected that the Commissioner will apply the judicial interpretation of "exceptional circumstances" and therefore "exceptional circumstances" for employers will not include such matters as:
- receiving poor professional advice;
- being unaware of having a SG shortfall for a quarter during the amnesty period; or
- being ignorant of the amnesty and associated penalties.
What are the next steps?
Employers should carefully check to see whether they have made the correct superannuation contributions in respect of their employees and, if not, take advantage of this amnesty.
Often, superannuation underpayments are a result of systemic errors or misunderstandings in the way that the law applies to a business. These errors can involve failures to pay superannuation for individual contractors, failure to make contributions on time and failure to properly calculate ordinary time earnings. The liability attached to these errors can quickly mount.
Please contact us if you are unsure about whether you have an SG shortfall to declare to the ATO and if you require further advice about the information that is to be disclosed to the ATO in order 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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.