Lapsed and back again: What is happening with the super guarantee amnesty?

What is super guarantee and what happens if an employer gets it wrong?

Super guarantee is the minimum percentage of an employee’s earnings that an employer is obliged to contribute into super. If an employer doesn’t pay the correct super guarantee for their employee into the correct fund by the correct date, they will be liable for super guarantee charge (SGC).  

SGC is made up of:

• super guarantee shortfall amounts;
• interest (currently 10%) on those amounts in lieu of earnings missed; and
• an administration component (which is $20 per employee, per quarter).

Super guarantee shortfalls are reported and rectified by lodging an SGC statement and paying SGC to the ATO.

Paying an employee’s super is certainly an important obligation — after all, it’s their money — but from the employer’s perspective, the process can be quite onerous. In some circumstances, it can be quite complex to calculate the ordinary times earnings for employees to determine the right amount of super to be paid. For example, employers need to consider factors such as bonuses, allowances and overtime. Determining whether payments are being made to genuine independent contractors or employees for super purposes is also a common issue among employers. Also, payments that been made to a clearing house on time but may be received by the super fund late.

Unfortunately, the current rules for managing super guarantee errors can be very difficult — especially for small businesses. So, not only is it easy to get wrong but the correction process can often add even more complexity. This may have led to some employers choosing not to correct their mistakes and, instead, taking the risk of getting caught out. But if an employer isn’t careful, it can easily get into a big mess.

What happened to last year’s amnesty?

There is a common misunderstanding that the super guarantee amnesty became law last year. This is not correct. Although the amnesty was originally announced in May 2018, the bill lapsed when the Federal Election was called and the amnesty was never enacted.

Then legislation was re-introduced into Parliament in September 2019. This time, the proposed amnesty period is extended — still starting from 24 May 2018, but now extending until 6 months after the bill receives royal assent. However, as at today, the proposed amnesty has not become law and the re-introduced legislation still remains before Parliament.

Announcing the super guarantee amnesty last year, only to experience delays to its implementation has created confusion. But everyone should clearly understand one thing — the ATO will continue to apply the existing law to SGC statements lodged with them until the law is enacted by Parliament.

How does the super guarantee amnesty work?

The idea behind the amnesty is to encourage employers to voluntary disclose their historical underpayments of super guarantee. Under the amnesty, employers will be able to self-correct these underpayments without incurring the additional penalties that would usually apply. Importantly, employers will also be able to claim deductions for SGC payments or contributions made during the amnesty period.

The amnesty will apply to super guarantee shortfalls from 1 July 1992 to 31 March 2018. Any shortfalls for quarters starting from 1 April 2018 will not be covered by the amnesty.

The amnesty only applies if an employer comes forward with amounts that have not been previously disclosed to the ATO. So, if you get notified by the ATO that they will be examining your super guarantee compliance for a particular quarter, the amnesty will not apply to that quarter.

What are the benefits of the amnesty?

There are a few benefits of employers making a voluntary disclosure under the amnesty:

• The employer will be able to claim a deduction for super guarantee charge payments and offsetting payments. Outside of the amnesty, these payments are not deductible.
• The administrative component will be waived. Usually, a mandatory administrative component of $20 per employee per quarter applies.
• Part 7 penalties will not apply. The employer would otherwise be liable for an additional Part 7 penalty of up to 200% (on top of the super guarantee charge) for failing to provide an SG statement by the due date.

The employer must still pay all super guarantee shortfall amounts and interest charges on these amounts, regardless of the amnesty.

Is there opposition to having the amnesty?

It is common for tax penalty amnesties to provoke mixed feelings. These amnesties may appear ‘unfair’ to taxpayers who fully comply with the law, since those who don’t comply are able to avoid penalties under the amnesty. Others who made voluntary disclosures to the ATO and corrected their wrongs before the amnesty was announced will receive no reprieve unless the bill is passed. While amnesties are a helpful part of a process to improve the whole system, the mixed views are understandable. 

What is the status of the proposed law?

The bill for the proposed amnesty is currently under review with a report due by 7 November 2019. The review may recommend that the bill gets passed in its current form or it may suggest amendments. The Government will need support from cross bench senators to pass the law. When the bill was first introduced in 2018, Labor indicated that it will not support the bill. Labor are striving to have a better relationship with businesses, but at this stage we don’t know what will happen.

What should employers do?

Employers need to get ready, not just wait and see if the amnesty is enacted. Waiting for the amnesty to be enacted may not leave employers with enough time to review historical compliance, as well as make the necessary disclosures and payments to the ATO. Payments made after the end of the amnesty period will not qualify for a deduction. You also need to remember that once the ATO has already announced an audit or review of your super guarantee compliance, you’ll lose access to the amnesty for the period being audited or reviewed. It is also important to know that if a company fails to meet its SGC liability in full by the due date, each director of the company will become personally liable for director penalties equal to the unpaid amounts. Beware, the proposed amnesty does not change the existing employer obligations in any way.

The introduction of Single Touch Payroll and events-based reporting means the ATO has more data to identify non-compliance. Employers should seek help and contact Mazars to discuss your super compliance and GST assistance.

For assistance handling your superannuation please contact your usual Mazars advisor or alternatively. 

Published: 23 October 2019

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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