The Superannuation Guarantee Amnesty finished on 7th September, 2020.
The Amnesty offered significant concessions for businesses who had overdue employee super to come forward and bring their super obligations up to date.
Despite a push from accounting industry bodies to extend the six-month amnesty period given the impact of COVID-19, the Amnesty finished on 7th September. With the finish of the Amnesty the ATO have been quick to start cautioning businesses about the tougher approach that will apply going forward.
So, we want remind business owners that despite the impact of COVID-19, now is not the time to ignore your employer super obligations. The Atticus team have prepared a summary to help guide employers through their super obligations. It can be downloaded from our website here.
However what we want to bring to your attention today is just how severe the implications can be if you don’t pay your employee super.
Late payment of super falls under the Superannuation Guarantee Charge rules and attracts the following disincentives and penalties:
- Late super is not a tax deductible expense for your business
- If you are late paying your super, you must lodge a Superannuation Guarantee Charge statement with the ATO. The ATO then administer late or unpaid super on behalf of the super fund.
- The ATO apply a 10% interest charge to the unpaid super. This is then remitted to the employee’s super fund and is designed to compensate the employee for lost earnings on their super
- ATO general interest charge accrues on overdue amounts (currently 8.54% per annum)
- An administration charge imposed by the ATO of $20 per employee per quarter
- An administrative penalty if you are found to have made a false or misleading statement of up to 75% of the unpaid super.
- An additional penalty, referred to as a Part 7 penalty, of between 100% and 200% of the unpaid super amount. Refer below on more information regarding this.
- Potential for the ATO to issue a Director Penalty Notice which may allow the ATO to recover unpaid amounts from Director’s personal assets
- Legal Action or Garnishee notices sent to your bank requiring payment.
What is a Part 7 penalty?
According to the ATO’s Practice Statement (PS LA 2020/D1) a Part 7 penalty is imposed where an employer fails to provide, when required:
- A Superannuation guarantee statement for a quarter, or
- Information relevant to assessing the employer’s liability to pay the Superannuation Guarantee charge for a quarter
- A part 7 penalty is automatically imposed on an employer by law.
- A Part 7 penalty is equal to 200% of the unpaid super amount.
The Practice Statement does provide some discretion to the ATO to reduce the penalty down from 200% although this is limited. In this post amnesty world, the penalty can be not be reduced to less than 100% where the unpaid super accrued for periods covered by the Amnesty unless:
- The employer voluntarily comes forward to lodge a superannuation guarantee charge statement, or
- Exceptional circumstances prevented the employer from lodging a superannuation guarantee charge statement
This means that if you are subject to audit activity and you are found to have unpaid super that you did not declare through the Amnesty period, the Part 7 penalty is likely to be double the amount of the unpaid super.
What should employers do if they think they may have underpaid their employee’s super?
It’s never a good idea to ignore unpaid or underpaid super.
“Running away from any problem only increases the distance from the solution.” Anonymous
It may feel like the problem is insurmountable. However, it’s always better to deal with a problem than ignore it. Especially when it comes to super. If you voluntarily come forward, there is an opportunity to reduce a Part 7 penalty. However, if ATO commence an audit on your unpaid super, a seemingly small problem of $5000 can easily turn into a $15,000 – $20,000 problem by the time the ATO administrative charges, interest and penalties are applied.
Here’s 7 of the worst reasons to ignore bringing your super up to date.
I don’t know where to start.
I don’t have time to work on this right now.
I have no idea how to fix it up.
The employees haven’t complained.
It’s impossible to work out.
There’s no way I can afford to pay the super right now.
I’m expecting business to improve in the next few months, I’ll fix it up then.
These are never good reasons to do nothing. Ignoring the problem can be extremely damaging for businesses.
The Atticus team have worked with 100’s of business clients over the years and our goal is always to make it as easy as possible to work through your obligations, help you understand what you need to do and help to ease the pain. It may be possible to put in place a payment plan with the ATO so that you can pay the overdue super off over a couple of months. If you’re unsure whether you’ve got your super right in your business we would love to help you sort it -out and better yet, help you to understand your overall costs, breakeven point and targets ensuring that you have control over your cashflow.