In the ATO’s first Super Guarantee Gap Report, released in August 2017, it revealed that there is a huge gap between the theoretical amount due by employers to be fully compliant with their SG obligations and the actual contributions received by super funds.

The ATO’s report (based on figures for the 2014-15 year) reveals that the estimated ‘gap’ or shortfall in SG payments is around 5.2% – equivalent to $2.85 billion in SG for one year alone.

According to the Minister for Revenue and Financial Services, Kelly O’Dwyer, the failure of some employers to meet their SG obligations has been a problem ever since SG was introduced in 1992.

With this in mind, the ATO is increasing its efforts to crack down on employers who fail to make on-time superannuation guarantee (SG) contributions on behalf of their employees. If you are an employer, whether large or small, now is the time to review your SG obligations before the ATO comes knocking.

Reforms give new powers to the ATO

In August 2017, the government announced additional funding for the ATO to establish a Superannuation Guarantee Taskforce to crack down on non-compliant employers.

In January 2018, draft legislation was released for what is being referred to as the “superannuation guarantee integrity package”.  The package is aimed at protecting employees’ super entitlements by expanding the suite of SG enforcement and collection tools available to the ATO.

The key measures proposed in the draft legislation include:

• Extending Single Touch Payroll (STP) to all employers (including those with fewer than 20 employees), from 1 July 2019. STP requires employers to report salary and wages, PAYG Withholding and super payments directly from their payroll solution in real-time, at the same time as they pay their employees.  This means the ATO will have significantly more data at their hands in real-time to be able to identify employers that are not meeting their SG obligations. For more information on STP, refer to our February 2018 newsletter.
• Allowing the ATO to disclose information to employees regarding the non-payment of SG, and efforts by the ATO to recover outstanding amounts.
• Strengthening arrangements for director penalty notices and security deposits for super and other tax-related liabilities. The director penalty regime gives the ATO power to recover unpaid PAYG Withholding and Superannuation Guarantee from directors personally through measures including garnishees, dis-allowing of tax credits in a director’s personal tax return and legal recovery proceedings.
• Giving the ATO the ability to seek court-ordered penalties in the most serious cases of non-payment, including those employers who are repeatedly caught but still fail to pay SG liabilities.
• Discretion for the Commissioner to direct employers to undertake an approved education course where they fail to comply with their SG obligations.

Although this legislation is still in draft form, with the recently released figures on the SG gap and increasing concerns over the ability of the superannuation system to cope with our rapidly ageing population and changing work environment, it is unlikely that there will be any material changes.

Other existing measures

Other compliance measures and powers already exist and are regularly used by the ATO.  These include:

• Super Guarantee Charge – Employers who fail to pay SG contributions on time are required by law to report and pay Superannuation Guarantee Charge.  This involves disclosing to the ATO the details of contributions not paid, or not paid on time; and paying the SGC (which includes the amount of unpaid super, plus interest and an administration charge) to the ATO. Generally, employers can use late contributions to offset a portion of the SGC relating to the relevant employee, however this does not apply in all circumstances.
• SG audits – The ATO regularly conducts audits of employers that they have reason to believe have not complied with their SG obligations.  Often they become of such situations by receiving employee complaints or through data matching activities.

What do you need to do?

1. Ensure you understand who you are required to pay SG for. The definition of “employee” under the Superannuation Guarantee (Administration) Act 1992 means that you could be liable to pay SG for a worker, even if they are a contractor. Many employers fail to recognise that they have a SG obligation in respect of such employees.
2. Make on-time SG contributions for your employees. Employers are required to make quarterly super contributions of at least 9.5% of an employee’s ordinary time earnings. If the contributions are not received by the employee’s nominated superannuation fund by the due date, the contributions are not tax-deductible to the employer. Contributions must be received by the superannuation fund by the 28th day after the end of a quarter.
3. If you miss a contribution or pay it late, don’t stick your head in the sand. Take action. Correct reporting and payment of Super Guarantee Charge can be quite complicated and, if reported incorrectly, can be a costly mistake. The best thing to do if you realised you have not met your SG compliance obligations is to contact your tax agent. We can advise the best course of action, specific to your circumstances, and assist you through the process.

At the end of the day, failing to pay super guarantee for employees is robbing them of their wages, and the ATO’s response has been intentionally harsh as a reflection of this.

Do you think you might have a SG compliance problem? Speak to us about your options before it’s too late!