Thinking | 12 March 2020
Super guarantee amnesty – act now before it is too late!
The long-awaited superannuation guarantee amnesty (Amnesty) has arrived in the form of the Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 (Amnesty Act) which received Royal Assent on 6 March 2019.
The Amnesty Act provides employers with a 6-month long amnesty to disclose historical superannuation guarantee shortfalls, after which a new and harsher penalty regime will come into effect.
The clock is now ticking. We strongly recommend that employers review their past superannuation guarantee positions to identify any potential exposure that should be disclosed before the Amnesty ends on 7 September 2020.
At present, the Government has not suggested that this period will be extended, regardless of other pressures currently faced by employers (including most importantly, the COVID-19 pandemic).
If you think it’s a 5-year disclosure window…think again!
If an employer’s records don’t go beyond the five-year record keeping period, their Amnesty disclosures may be limited to that period – you can’t disclose what you don’t know.
However, you should be careful in doing this. The ATO is not limited to considering this five-year window - they can go back to 1992 if they want! And just because you don’t have records, it doesn’t mean someone else won’t. In an audit, the ATO will consider third party information including bank records, employee contracts and enterprise bargaining agreements and awards.
If you are making a disclosure under the Amnesty, you must be able to honestly say that you have considered all past periods to the best of your ability and have not been able to identify any historical shortfalls. If it is obvious from your disclosure that you are likely to have undisclosed historical shortfalls, expect the ATO to dig deeper – they are not beholden to your request to stop at five years.
Shortfalls that are not disclosed will not get Amnesty protection and a failure to disclose when you were aware of the shortfalls (or should have been aware) will have a material impact on any penalties imposed.
Details of the Amnesty
Am I eligible for the Amnesty?
An employer will be eligible for the amnesty in relation to a particular superannuation guarantee shortfall where both the following key conditions are met:
- The Australian Taxation Office (ATO) must not have notified the employer of a review into their superannuation guarantee compliance for the period in which the shortfall arose;
- the shortfall must be voluntarily disclosed to the ATO within the period beginning 24 May 2018 and ending 7 September 2020 (six months after the Amnesty Act received Royal Assent); and
- the shortfall must arise in the quarter ended 31 March 2018 or an earlier period (shortfalls arising in later periods are not covered).
What are the benefits under the Amnesty?
Importantly, if an employer qualifies for the amnesty in relation to a particular shortfall, Superannuation Guarantee Charge (SGC) will still be imposed on that shortfall. This means that employees will still receive their unpaid superannuation and employers will still need to pay the administration fee and nominal interest components of the SGC.
However, the Amnesty provides employers with two quite significant benefits:
- Eligible employers will be able to claim a tax deduction for any SGC imposed upon the employer in respect of that shortfall, provided the SGC liability is paid by 7 September 2020. Ordinarily a deduction is not available for SGC.
- Eligible employers will be exempt from the application of penalties under Part 7 of the Superannuation Guarantee (Administration) Act 1992 on a shortfall to which the Amnesty applies.
Are there any pitfalls? Some practical considerations
Where an employer discloses a shortfall for a particular period for the first time, Part 7 penalties would ordinarily apply - these will be waived under the Amnesty. However, if the employer has previously been issued with an SGC assessment for a particular period and makes disclosures that result in that liability being higher, a separate penalty regime applies under the Taxation Administration Act 1953.
These administrative penalties are not automatically waived under the Amnesty, but the ATO has confirmed that if the employer meets the eligibility requirements in respect of a superannuation guarantee shortfall, these administrative penalties will be waived ‘in all but the most egregious of cases’.
Period of review
Where employers identify a systemic issue resulting in long-term superannuation guarantee non-compliance, they may face significant exposure to SGC as the ATO may have the power to issue SGC assessments all the way back to 1992 when the superannuation guarantee regime commenced!
Where this is the case, the employer may seek to limit the ATO’s period of review to a shorter timeframe. However, this gives rise to a technical risk that the ATO could review the employer’s historical non-compliance at some future date if not disclosed under the Amnesty. An employer should seek proper legal advice in this regard.
Shortfalls arising on or after 1 April 2018
Although the Amnesty will not cover superannuation guarantee shortfalls in periods commencing on or after 1 April 2018, these matters must also be dealt with prior to 7 September 2020 in order to avoid the new penalty regime (discussed below). These shortfalls may attract some penalties and the employer cannot claim a tax deduction for the applicable SGC.
What if I don’t take advantage of the Amnesty?
- Big penalties: Previously, penalties could be imposed at up to 200% of an employer’s SGC liability, but would ordinarily only be applied at 100% or less. However, once the Amnesty ends on 7 September 2020 a new SGC penalty regime will kick in, whereby the ATO will no longer have the discretion to remit penalties below 100%.
- No tax deduction: Employers will again be denied the ability to claim a tax deduction equal to SGC imposed on them in relation to superannuation guarantee shortfalls.
- Higher professional advisor fees: Without fail, identifying and disclosing past non-compliance is always more cost effective than managing an ATO audit. You can save yourself a lot of time, money and stress by getting ahead of the ATO and making a disclosure during the Amnesty period.
We anticipate that the Amnesty will be followed by increased superannuation guarantee compliance activity from the ATO, aided by the wide roll-out of Single Touch Payroll and the ATO’s increased data matching and analysis activities.
Given the generous terms of the Amnesty, we do not expect that the ATO will be merciful in their application of Part 7 penalties once the Amnesty ends; particularly where the employer knew or should have known that they failed to properly comply with their superannuation guarantee obligations and failed to take advantage of the Amnesty.
Now is the time to identify and manage any exposure to SCG liabilities arising from superannuation guarantee shortfalls, before the Amnesty period ends. Hall & Wilcox can assist you in reviewing past superannuation guarantee positions, identifying potential exposures and making voluntary disclosures to the ATO.
Recent superannuation issues and developments
Superannuation and annual leave loading
The ATO’s public ruling SGR 2009/2 states (and has always stated) that annual leave will form part of an employee’s ordinary time earnings (OTE), but annual leave loading is not OTE if it is demonstrably referable to a notional loss of opportunity to work overtime.
However, the ATO previously provided conflicting and unclear website guidance on this matter, resulting in many employers failing to make superannuation guarantee payments to employees in respect of annual leave loading. The ATO has now corrected its website guidance to be consistent with its position in SGR 2009/2.
As a result of this conflicting guidance and seemingly widespread non-compliance, the ATO has stated the following in relation to its approach to this issue:
- Past periods: The ATO will not apply compliance resources to scrutinise why annual leave loading was paid in previous quarters, where:
- the employer self-assessed that the annual leave loading was not OTE based on a reasonable position that their annual leave loading was paid for a notional loss of opportunity to work overtime; and
- there is no evidence less than five years old which suggests the entitlement was for something other than overtime.
- Future periods: Superannuation guarantee contributions must be paid in relation to annual leave loading unless the employer obtains written evidence that the entitlement is ‘demonstrably referable’ to a lost opportunity to work overtime. This could include:
- language in the relevant award or enterprise bargaining agreement setting out the reason for the annual leave loading entitlement; or
- other written evidence, including internal company policies, clarifying the reason(s) for the annual leave loading entitlement. These documents must ‘reflect the mutual understanding of both parties to the agreement that gives rise to the entitlement’.
For past and future periods, it will not be sufficient for the employer to rely upon historical opinions regarding the original purpose of annual leave loading being included in most modern awards.
Super salary sacrificed amounts are now OTE
Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019, which received Royal Assent on 28 October 2019, adjusted the calculation of an employee’s superannuation guarantee entitlements and an employer’s SGC liability.
Previously, employers were required to contribute an amount equal to 9.5% of an employee’s ‘ordinary time earnings’ (or OTE) in order to avoid a superannuation guarantee shortfall (and associated SGC). For example, where an employee had a salary of $100,000 and salary sacrificed $5,000 to superannuation, the employer was only required to make superannuation guarantee payments in respect of $95,000.
Now, employers must make superannuation guarantee contributions in respect of an employee’s OTE and any amounts sacrificed into superannuation that would have been OTE, if not for the salary sacrifice arrangement.
Importantly, employers are not required to make superannuation guarantee contributions in respect of amounts that are salary sacrificed for fringe benefits (e.g. motor vehicle novated leases, laptops, etc). It is unclear whether this measure will be extended in the future.
Anthony specialises in taxation planning and structuring for corporate clients, including advising on capital raisings and M&A.
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Alison has more than 20 years’ experience in a wide-ranging employment and privacy practice.
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Jim is a experienced lawyer and Chartered Tax Advisor, providing expert advice on corporate and trust tax matters.
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