The Superannuation Guarantee (‘SG’) amnesty was introduced as law on 6 March 2020 by the Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 (Cth) and the deadline of 7 September 2020 is near. The amnesty enables ‘employers’ to rectify any shortfall and related amounts under the Superannuation Guarantee (Administration) Act 1992 (Cth) (‘SGAA’) for any quarter in respect of the period of 1 July 1992 and 31 March 2018.
What is the Superannuation Guarantee (‘SG’)?
The SGAA requires employers to pay a minimum of 9.5% of an employee’s ordinary time’s earnings to the employee’s superannuation fund within 28 days after the end of each quarter. Failure to do so may result in the employer paying the following to the ATO:
- SG charge (generally not tax deductible) which consists of the following components:
- SG shortfall component, which is the total amount by which an employer has fallen short of contributing the minimum contributions for each respective employee.
- Nominal interest component of 10% per annum, which is the amount of interest on the total of the employer’s SG shortfalls for each respective employee for each quarter calculated from the beginning of the relevant quarter until the date SG charge is paid.
- Administration component, which is $20 per employee to which the SG shortfall applies for each quarter.
- Part 7 penalties for failing to provide information or a statement as required under the law, which can be up to 200% of the amount of the SG charge.
- General interest charge (GIC) imposed if the SG charge or Part 7 penalties are not paid by the due date.
The SG amnesty
The SG amnesty enables ‘employers’ to rectify any shortfall and related amounts between 1 July 1992 and 31 March 2018 without penalty provided the requisite payment and disclosure occurs before 11:59 pm on 7 September 2020. In particular, employers pay the required amount before midnight on 7 September 2020. If they do so they are not be required to pay:
- the administration component of $20 per quarter per employee; and
- part 7 penalties will not apply.
One further advantage of the SG amnesty, is that it enables an employer to claim a tax deduction. As noted above, in the absence of the SG amnesty, an SG shortfall is generally not deductible.
If an employer does not disclose before 11:59 pm on 7 September 2020, and the ATO subsequently discover that the employer has not complied with their SG obligations after 7 September 2020, the employer will be subject to the usual SG shortfall, nominal interest, penalties and the other consequences outlined above. Moreover, the minimum Part 7 penalty that applies is 100% and the employer will not be able to claim the SG charge as a deduction.
Thus, the SG amnesty provides a significant incentive for employers to disclose any past shortfalls.
Eligibility for the SG amnesty?
Broadly, an employer qualifies for the SG amnesty if they satisfy the following eligibility criteria:
- Prior to 11:59 pm on 7 September 2020, the employer discloses to the ATO:
- each SG shortfall for each employee for each relevant quarter that the employer has not already disclosed to the ATO in relation to the quarters between 1 July 1992 and 31 March 2018.
- Lodge the approved form with the ATO before the deadline.
The SG amnesty is not available if the ATO has previously advised the employer that the ATO wishes to examine the employer’s compliance with respect to SG charge payments.
If an employer is eligible for the amnesty, the ATO will notify the employer following receipt of the amnesty application and the employer will need to pay or set up a payment plan to pay the amount owed. If the employer does not pay this amount, set up a payment plan or comply with the payment plan on or before 11:59 pm 7 September 2020, the employer will be disqualified from some of the concessions under of the amnesty.
For example, only payments made to the ATO before the deadline can be claimed as a deduction. However, a lower Part 7 penalty may apply for disclosures made prior to the deadline even if payment is made at a later time in accordance with the approved payment plan.
What about the employee?
Employees may find that they might finally receive ‘lumpy’ SG contributions that they are finally owed in sizeable amounts. This may result in some employees exceeding their $25,000 annual concessional contributions cap in relation to the financial year they receive their SG shortfall. Thus, they may therefore become liable to pay tax on their excess concessional contributions.
If this does occur, the employee can request the ATO to disregard any excess concessional contributions. The ATO has a discretion to do so. Indeed, during the SG amnesty, there is no need for an employee to make such an application as the ATO will pay the employee the SG shortfall on the employer’s behalf.
However, it is important to note that this exception will not apply if the employer pays the SG shortfall and interest directly to the employee’s superannuation fund or to a clearing house. If this occurs the employee may be subject to the following consequences:
- The SG shortfall and nominal interest will be considered concessional contributions and be included in the fund’s assessable income.
- An excess concessional contributions assessment may issue to the employee.
- An adjusted carry forward concessional contributions amount may apply under the five-year averaging rule where the member has less than $500,000 total superannuation balance.
Thus, employers should remember to make payment of SG shortfalls and additional amounts direct to the ATO.
Employees should monitor their super balances and make sure they carefully check any excess contributions that may arise as a result of ‘lumpy’ SG contributions. Employees should seek expert advice if they have any doubt.
The SG amnesty provides employers an incentive to disclose any SG shortfalls prior to the dealdine.
Given all the changes in recent years employers must ensure moving forward that they are fully compliant with the SG system or suffer substantial penalties.
Submissions have been made by various professional bodies to have the deadline deferred for at least another 6 months. However, legislation will need to be passed extending this deadline; the ATO have no power to extend it. Thus, the opportunity under the amnesty may fast disappear.
Naturally, DBA Lawyers would be pleased to assist with any SG or super related matters.
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
Note: DBA Lawyers hold SMSF CPD training throughout the year. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Daniel Butler, Director ([email protected]), DBA Lawyers
31 August 2020