Thinking | 7 August 2020
The last days of Rome: super guarantee amnesty ends 7 September
The Superannuation Guarantee Amnesty comes to an end on 7 September 2020, taking with it the generous concessions provided to those who voluntarily disclose superannuation guarantee (SG) shortfalls.
Understandably, employers may be hesitant to dredge up issues that have not (yet) been raised by the ATO, particularly in the current economic climate. However, employers with historical non-compliance face a substantial risk of audit by the ATO. Shortfalls that are not disclosed will not get Amnesty protection and the ATO is not limited to considering the five-year record keeping period – they can go back to 1992 if they want to assess employers for Superannuation Guarantee Charge (SGC) if they want!
The Amnesty will be followed by increased SG 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. The ATO has already begun this process by putting 860,000 employers on notice that the Amnesty will soon come to an end and the music is about to stop.
In light of the onerous penalty regime that will come into effect following the Amnesty, it is critical that employers take advantage of the Amnesty while there is still time. The details of the Amnesty are discussed below.
What do I get?
For SG shortfalls covered by the Amnesty:
- No penalties will be imposed on top of the resulting SGC liability.
- Tax deduction upon payment of the SGC liabilities.
How do I get it?
An SG shortfall will be covered by the Amnesty if the following conditions are met:
- The SG shortfall must arise in the quarter ended 31 March 2018 or any earlier period (back to 1992 when the SG system was introduced). SG shortfalls arising in later periods will still be subject to penalties, but at a significantly reduced rate if they are voluntarily disclosed to the ATO.
- The SG shortfalls must be disclosed in the approved form by 7 September 2020.
- The employer must not already be the subject of an SG audit for the relevant period(s).
Additionally, in order for the employer to claim a tax deduction, the resulting SGC liability must be paid by 7 September 2020.
That’s the carrot… so what’s the stick?
- Big penalties: for historical SG shortfalls not disclosed by 7 September 2020, significant penalties will apply. These penalties will generally be set between 100% and 200% of the shortfall amount, unless a voluntary disclosure is made before the ATO takes compliance action or there are exceptional circumstances preventing disclosure.
- No tax deduction: employers will again be denied the ability to claim a tax deduction for SGC payments.
- 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.
PSLA 2020/D1 outlines the ATO’s proposed approach to Part 7 penalties once the Amnesty ends. This document makes it clear that the ATO will not be merciful in their application penalties to historical SG shortfalls not disclosed under the Amnesty.
Most importantly, for historical periods (March 2018 and earlier) the Commissioner will be prohibited from reducing penalties below 100% of the SGC liability unless the SG shortfalls are voluntarily disclosed prior to ATO compliance action commencing, or the employer was unable to make a voluntary disclosure due to exceptional circumstances.
The following guide is provided for the application Part 7 penalties after the Amnesty ends. The final penalty imposed may be higher where the employer has a bad compliance history, or lower where there are mitigating circumstances.
|Degree of attempt to comply||Base penalty amount||Penalty amount is equivalent to:|
|Where the ATO commences compliance action prior to a disclosure being made|
|Default assessment is made and the employer has either demonstrated repeat disengagement or ATO forms the opinion that the employer has engaged in a ‘phoenix’ arrangement||100%||200% of SGC liability|
|Default assessment is made where the employer has failed to lodge an SG statement or provide relevant information in response to ATO compliance action||75%||150% of SGC liability|
|Default assessment is made based on information provided by the employer after the lodgment due date in response to ATO compliance action||60%||120% of SGC liability|
|Employer lodges an SG statement after the lodgment due date in response to ATO compliance action (for example, after an audit has commenced)||50%||100% of SGC liability|
|Where disclosure is made prior to ATO commencing compliance action|
|Employer lodges an SG statement after the lodgment due date and after initial ATO-initiated contact, but before any ATO compliance action||20%||40% of SGC liability|
|Employer lodges an SG statement after the lodgment due date but before any ATO-initiated contact||10%||20% of SGC liability|
|Employer lodges an SG statement on or before the lodgment due date (including an extended due date)||0%||0% of SGC liability|
Employers should immediately act to identify and manage any exposure to SCG liabilities arising from superannuation guarantee shortfalls before the Amnesty period ends on 7 September 2020. Hall & Wilcox can assist you in reviewing past superannuation guarantee positions, identifying potential exposures and making voluntary disclosures to the ATO.
If employers are in the process of internal payroll or underpayment audits that may not be resolved by 7 September, they should, with appropriate advice, proactively engage with the ATO regarding any potential SG shortfalls. Putting the ATO on notice that a disclosure will be made after the Amnesty will not attract the same concessions, but it will have a material impact on the amount of penalties imposed.
We have previously published the following updates on the Superannuation Guarantee Amnesty:
- Our views on the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, including the scope of the Amnesty and the onerous penalty regime that will follow, are discussed in our article The Superannuation Guarantee Amnesty: Is it everything we’ve been promised?
- A more detailed discussion of the Amnesty eligibility requirements, its application by the ATO and some common issues that may cause SG shortfalls are discussed in our article Super guarantee amnesty – act now before it is too late!
- In our article Super Guarantee Amnesty – What you really need to know we cover some additional insights provided by the ATO on the Amnesty.
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