- There are less than two months to go before the superannuation guarantee amnesty ends. Although efforts have been made to seek an extension to the amnesty, an extension cannot be assumed;
- Increased contractor activism, real-time data collection and sharing, media naming-and-shaming and more ATO audit activity have all significantly increased the risk of not disclosing superannuation guarantee shortfalls now;
- The ATO acknowledges the difficulties posed by COVID-19 and will let taxpayers enter into payment arrangements;
- Taxpayers who do not ‘come clean’ before 7 September 2020 will be faced with a minimum 100% penalty on the amount of the superannuation guarantee charge; and
- We are working with taxpayers across multiple industries to facilitate voluntary disclosures to the ATO before the 7 September 2020 deadline.
What are the benefits of the amnesty?
Employers are generally required to contribute a minimum percentage (currently 9.5%) of their employees’ ordinary time earnings into their employees’ superannuation funds. Employers who fail to make these contributions on time are liable to pay the superannuation guarantee charge (SGC) to the ATO, which is comprised of:
- The total of the employer’s superannuation guarantee shortfall (SG shortfall) for a particular employee;
- The nominal interest on the SG shortfall (currently 10.0%); and
- An administration component of $20 per employee per quarter.
Non-compliant employers are also be liable for Part 7 penalties of up to 200% of the SGC and are denied a tax deduction for the SGC paid. In addition, the General Interest Charge (GIC) may be imposed where either the SGC or penalties are not paid by the due date.
The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Bill) received Royal Assent on 6 March 2020. Broadly, the superannuation guarantee amnesty provides for a one-off amnesty to encourage employers to voluntarily disclose historical SG non-compliance and pay an employee’s full entitlement, including the employee’s SG Shortfall, nominal interest and any related GIC on unpaid amounts of SGC.
Specifically, an employer that qualifies for the amnesty in relation to their SG shortfall for a quarter:
- Has no $20 administrative component in respect of employees for whom the employer has an individual SG shortfall that was only identified because of a disclosure under the amnesty;
- Has no Part 7 Penalties in respect of amounts of SG shortfall that qualify for the amnesty; and
- Can deduct payments made in relation to SGC imposed on the SG shortfall, or contributions that are offset against the SG charge, that are made during the amnesty period. Payments made after the end of the amnesty period will not qualify for a deduction, even if they relate to SG Shortfalls disclosed under the amnesty.
In general terms, to qualify for the amnesty an employer must disclose to the Commissioner information related to an SG Shortfall for a quarter that ends at least 28 days before the start of the amnesty period.
From the day after the amnesty period ends, the amendments limit the ATO’s ability to remit the Part 7 Penalty in certain circumstances. This limit ensures that the ATO cannot generally remit penalties below 100% of the amount of SGC payable by the employer for a historical quarter that was covered by the amnesty (ie. quarters starting on or before 1 January 2018) where the employer did not disclose the shortfall as part of the amnesty.
When does the amnesty period begin and end?
The amnesty period is the period commenced on 24 May 2018 and will end on 7 September 2020.
What superannuation quarters are potentially eligible for the amnesty?
The beneficial treatment provided by the amnesty is available for a quarter that ends at least 28 days before the start of the amnesty period. This means that the beneficial treatment provided by the amnesty is available in relation to the quarter starting on 1 July 1992 (which is the day the SGAA commenced) and all subsequent quarters until and including the quarter starting on 1 January 2018.
An employer will not be able to benefit from the amnesty for SG shortfall relating to the quarter starting on 1 April 2018 or subsequent quarters.
Is an employer eligible for the amnesty?
An employer qualifies for the beneficial treatment provided by the amnesty in relation to the employer’s SG shortfall for a quarter covered by the amnesty if:
- During the amnesty period the employer discloses to the Commissioner, in the approved form, information that relates to the amount of SG shortfall for the first time; and
- The Commissioner has not, at any time before the disclosure, informed the employer that the Commissioner is examining (or that the Commissioner intends to examine), the employer’s compliance with an obligation to pay SGC for the quarter; and
- The employer has not been disqualified from the beneficial treatment under the amnesty.
Lumpy contributions made by employers under the amnesty should not adversely impact employees
The amnesty may result in employers paying to the Commissioner SGC which represents late payments of SG covering a number of years. The Commissioner must pay these amounts to an employee’s superannuation account for the employee’s benefit in accordance with the SGAA. These contributions would be considered concessional contributions and may cause employees to exceed their annual concessional contributions cap.
Employees may be disadvantaged by this. Generally, individuals are not subject to income tax on their concessional contributions. However, concessional contributions in excess of the cap (excess concessional contributions) are included in the individual’s assessable income. Further, the employee would be liable to pay an ‘excess concessional contributions charge’.
However, the 1997 Act provides the ATO with the discretion to make a determination, for the purposes of working out an individual’s excess concessional contributions for a financial year, disregarding concessional contributions or allocating them to another financial year. The Commissioner may only make a determination if the individual makes an application and the Commissioner considers that there are special circumstances and that making the determination is consistent with the objects of Division 291 of the 1997 Act.
However, where the Commissioner has made contributions on behalf of the individual and the contributions represent amounts recovered under the amnesty from the individual’s employer, the individual will not need to make an application to the Commissioner to exercise his discretion to reallocate or disregard the excess concessional contributions. This will allow the Commissioner to ensure employees are not disadvantaged by contributions representing late SG payments made on their behalf as a result of the amnesty.
However, the exception does not apply where the employer has made the contributions directly to an employee’s fund and has used those contributions to offset their SGC liability (relying on the late payment offset mechanism). However, such individuals can still request that the Commissioner exercise the discretion under the existing power. The amendments also ensure that contributions made as a result of the amnesty do not attract additional tax under Division 293 of the 1997 Act or cause other ‘low taxed’ contributed amounts to attract additional tax under Division 293.
What should you do now?
As the Amnesty period currently expires on 7 September 2020, we strongly recommend that employers conduct an internal review of their compliance with superannuation guarantee obligations, which may involve reviewing whether employees and contractors have been properly characterised.
Contact Shaun Cartoon, Tax Partner or Jonathan Nguyen (Special Counsel) if you have any queries relating to your superannuation guarantee obligations.
This article was written by Shaun Cartoon, Partner, Vincent Licciardi, Special Counsel and Jonathan Nguyen, Special Counsel.