Tougher policing for super guarantee puts repeat offenders on notice
Due to a new regime of reporting and transparency, plus a package of approved and pending governmentinitiated reforms, businesses that don’t pay compulsory super guarantee (SG ) employee contributions on time will be in the crosshairs of an Australian Tax Office (ATO) crackdown.
Under the current law, companies are in breach of their SG obligations if contributions remain unpaid 28 days after the quarter ends. However, due to a more sympathetic stance taken by the ATO in recent years, tolerance over non-compliance has, by default, progressively short-changed a growing number of employees in Australia.
According to ATO analysis, employees missed out on around $2.85 billion of their super guarantee payments during the 2014/15 financial year alone, and a whopping $17 billion over the last eight years.
As a result, it’s hardly surprising that the federal government wants the ATO to get tougher with the worst offenders, many of which include small- to medium-sized enterprises (SMEs). Recent statements by the revenue minister, Kelly O’Dwyer, confirm that a new era of tougher policing by the ATO towards employers who deliberately avoid paying their workers’ super entitlements is now in effect.
Having closed a legal loophole used by some unscrupulous employers to shortchange employees making salary-sacrifice contributions to their super, the government is funding an ATO superannuation task force to crack down on employer non-compliance. In conjunction with this crackdown, the government’s recent package for reforms also includes a timetable for the move to a Single Touch Payroll, a new mandatory electronic payment system. Like it or not, all companies with 20 or more employees will, as of 1 July 2018, be required to adopt the Single Touch Payroll system, while smaller firms have until 1 July 2019 to fall into line.
While an electronic payment system will give the ATO much greater visibility into unpaid super, the Australian Institute of Superannuation Trustees (AIST) CEO, Eva Scheerlinck, doesn’t think reforms go far enough. Instead of being required to pay staff super quarterly, she says employers should be required to pay super at least monthly, in line with wages payments and with benefits paid clearly recorded on the employee’s payslip. It’s not uncommon for businesses to be a few days late paying their SG contributions, especially if cash flow is tight, and the ATO’s previously-benign stance has clearly encouraged this. However, serial offenders must be aware that the ATO is likely to come after them first.
Unbeknownst to many companies, by the time the ATO knocks on their door asking questions, it most likely already has all the data needed to substantiate non-compliance with its SG obligations.
Improved data transparency aside, much of the ATO’s information into serial non-payers also comes from within, with employees and former employees reporting around 20,000 instances of non-payment annually.
While the ATO’s crackdown on late SG payments could accelerate the collapse of companies with liquidity issues, many directors still don’t have a good grasp of their requirements, which may not end along with the business.
Admittedly, some safe harbour provisions have been set up to give directors a level of protection. But, given their exposure to personal liabilities, would-be directors of a company are recommended to firstly check for any unpaid or unreported PAYG withholding or SG liabilities.
Even if one director within a franchise is solely responsible for the administration of SG payments, that doesn’t necessarily exonerate other directors from their responsibilities to ensure SG contributions are paid. On top of unpaid SG contributions, one of the changes being proposed is to add GST to the amounts directors can be personally liable for.
Technically, directors are liable in equal measure to pay the outstanding SG amount between them. However, the outstanding SG amount could fall onto the shoulders of just one director, should the others have no capacity to pay.
On top of the outstanding amount, directors may also have to pay interest and an additional percentage of SG contributions (to employees, not the ATO) as a penalty.
Seek help early
Rather than being on the receiving end of the ATO’s harsher approach to serial SG late-payers, businesses needing more time to pay need to take a proactive approach. Given that the ATO has traditionally been willing to discuss options, reasonable attempts to set up a lump-sum payment plan could deliver a much better outcome than trying to fly under the radar.
If the business is heading towards insolvency, directors must get advice about managing SG contributions and other outstanding debts as early as this becomes apparent.
Ensuring the business is structured appropriately could mean implementing accounting software or appointing an external provider to manage the company’s payroll.
From July 2014, Superstream became the compulsory electronic standard for processing super data and payments. If companies are still not sending corresponding data in an appropriate electronic format, they’re not compliant with Superstream. The ATO also offers a Small Business Superannuation Clearing House (SBSCH) service that’s free to SMEs with fewer than 19 staff and turnover under $2 million. Unlike Slipstream, this isn’t compulsory but, given it’s free and very useful, it’s hard to see why a company wouldn’t want to use it.
Beware director penalties
Company directors are personally liable for a penalty equal to the amounts the company has outstanding in PAYG withholding and super guarantee obligations. New directors have 30 days before becoming liable to director penalties equal to all of the company’s unpaid PAYG withholding liabilities, as well as all unpaid super guarantee liabilities from 1 April 2012.
However, as new directors won’t be liable to director penalties for amounts due before their appointment if, within 30 days starting on the date of their appointment, the company does one of the following: pays their PAYG withholding and/or super guarantee debt in full; appoints an administrator under section 436A, 436B or 436C of the Corporations Act 2001; or the company begins to be wound up (within the meaning of the Corporations Act 2001).
Even if a new director resigns within the 30-day period, they will still be liable for the unpaid PAYG withholding and super guarantee liabilities of the company that were due before their appointment. They will also be liable for any unpaid liabilities for reporting periods that started while they were a director, except if they resigned before the first withholding event in that period.1
Reforms under consideration
The mandatory Single Touch Payroll system is only six months away, (1 July 2018) for employers with 20-plus staff, (and another 12 months for companies with fewer than 20 employees). Consequently, Kate Carnell, Australian Small Business Enterprise Ombudsman, urges companies to ensure they have the appropriate software in place to comply.
While the Single Touch Payroll system will streamline business reporting obligations, it doesn’t demand quicker payment. However, Kate Carnell has reminded employers that it will provide near real-time visibility by requiring them to: count the number of staff, including casuals; and improve payslip reporting by providing information to the ATO on the amount of tax paid and SG payments when paying staff.
While Single Touch Payroll reforms received Royal Assent on Friday 16 September 2016, other recommended measures currently under consideration include granting the ATO power to seek court-order penalties where employers are caught repeatedly failing in their super obligations.
There are also moves afoot to strengthen expert advice director penalty notices, and use of security bonds for high-risk employers, to ensure that unpaid super is better collected by the ATO and paid to employees’ super accounts. Businesses need to ensure they’re on the right side of these superannuation and PAYG changes. They should seek professional advice immediately to avoid the penalties associated with non-compliance.
Joining RSM in 1997, Brad Eppingstall is a director of the business advisory division in Ballarat.
Brad is often consulted by clients to provide specific and ongoing advice in relation to superannuation planning strategies; taxation advice on group restructures and taxation advice on specific transactions. Having grown into one of Australia’s leading professional services firms over the last ninety five years, RSM Australia is committed to enabling clients through a greater understanding of what matters most to their business.
In addition to local knowledge provided by their advisers in 30 offices across Australia, RSM Australia draws on their international reach and scale to ensure clients stay at the forefront of the world’s best practices, technology and innovation within a rapidly changing global economy.
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Ref: 1 www.ato.gov.au