Thinking | 22 October 2019
The Superannuation Guarantee Amnesty: Is it everything we’ve been promised?
Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 has now become law and the Amnesty Period has commenced (ending 7 September 2020). For an update regarding the final details of the Bill and some recent superannuation guarantee issues catching the eye of the ATO, read our update Super guarantee amnesty – act now before it is too late!
The Superannuation Guarantee Amnesty (Amnesty) was originally announced as part of the 2018-19 Federal Budget in May 2018, but the original Bill lapsed when the last Federal election was called.
The Amnesty was recently reintroduced to Parliament in Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (Bill) but is it everything we’ve been promised?
We have concerns around the scope of the Amnesty and the potentially quite harsh changes to the penalty regime that are slated to take effect after the Amnesty ends. These are discussed in more detail below, along with the key features of the Amnesty.
SGC and penalties
An employer will be liable to penalties under Part 7 of the Superannuation Guarantee Assessment act 1992 (Act) equal to 200% of the employer’s superannuation guarantee charge (SGC) liability (Part 7 Penalties) if:
- The employer has an SGC liability but lodges their superannuation guarantee statement after the due date; or
- They fail to lodge the statement and ATO issues an assessment for SGC in its absence.
Alternatively, if an employer asks the ATO to amend an SGC assessment for a prior period, they may be liable for penalties on any increase to their SGC liability under the Taxation Administration Act 1953 (Cth) for making a false or misleading statement to the ATO (TAA Penalties).
The ATO currently has the discretion to remit all or part of any Part 7 Penalties or TAA Penalties that may be imposed.
The Superannuation Guarantee Amnesty
An employer will be eligible for the Amnesty in relation to a particular superannuation guarantee shortfall where the following key conditions are met:
- The shortfall must be voluntarily disclosed to the ATO within the period beginning 24 May 2018 and ending six months after the Bill receives Royal Assent; and
- The shortfall must arise in the quarter ended 31 March 2018 or an earlier period. This is to ensure that employers do not incur shortfalls in current periods, knowing they will be able to avoid any applicable penalties. The ATO and the government are promoting the Amnesty as a way of clearing out all historical shortfalls and conceivably, disclosures could date back to the introduction of the superannuation guarantee in 1992.
Importantly, if an employer qualifies for the Amnesty in relation to a particular shortfall, 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 Bill proposes to provide employers with two quite significant benefits:
- Eligible employers will be exempt from the application of Part 7 Penalties on a shortfall to which the Amnesty applies; and
- Eligible employers will also be able to claim a tax deduction for any SGC imposed upon the employer in respect of that shortfall. Ordinarily a deduction is unavailable for SGC.
Upon the expiry of the Amnesty period, the Bill proposes to restrict the ATO’s discretion to remit Part 7 Penalties. On its current drafting, the Bill would prevent the ATO from remitting Part 7 Penalties below 100% of the employer’s SGC liability.
Ordinarily, an amnesty is followed by a compliance blitz. We expect that the ATO will focus on education of employers in the short term to encourage voluntary disclosures, and then step up its audit activity soon after the expiry of the Amnesty.
In light of this and the generous concessions granted to employers who come forward during the Amnesty period, we strongly encourage employers to immediately review their previous superannuation guarantee compliance to determine whether they have any potential exposure here.
Ordinarily the ATO will limit their superannuation guarantee audits to the past five years to align with the record-keeping requirements. However, the ATO has the ability to impose an SGC liability on an employer for any past period, as far back as 1992, and considering the likely uptick in ATO compliance activity after the Amnesty period, there is a real risk that they may seek to do so. This is one scenario where letting sleeping dogs lie may come with significant bite.
Our views on the Bill
Scope of the Amnesty
The Bill provides employers with an amnesty from Part 7 Penalties, but does not provide any equivalent relief from TAA Penalties. So in effect, the Bill benefits employers who have failed to lodge superannuation guarantee statements for past periods, but neglects those seeking to amend an assessment for a past period.
We have raised this issue with the Senate Economics Legislation Committee (Committee), which is due to report on the Bill in early November 2019, and recommended that the scope of the Amnesty be expanded to provide employers with equivalent protection from TAA penalties. The Committee queried this issue with Treasury, who confirmed that the TAA Penalties would indeed apply in these circumstances, but the ATO would remit these penalties in full ‘in all but the most egregious cases’.
In our view, the Bill has not been appropriately drafted to give effect to the intent of the Amnesty. It does not seem fair or consistent with the intent of the Amnesty that employers who have failed to lodge superannuation guarantee statements for past periods would be protected, while those seeking to amend a past assessment are not.
There should be parity between the Amnesty’s application to Part 7 Penalties and TAA Penalties and while the ATO’s proposed approach is helpful, it is not sufficient. This parity should be reflected in the provisions of the Bill itself.
Restriction on the remission of penalties
While we understand that the Government wishes to provide employers with a carrot and a stick (ie the Amnesty, then increased penalties), removing the ATO’s discretion to remit Part 7 Penalties below 100% may produce some unfair outcomes.
For example, many employers are currently grappling with whether they are required to pay superannuation on annual leave loading, following recent clarification of the ATO’s position on this matter. This is an issue where many employers may find themselves in a scenario where they genuinely and reasonably believe they were not required to do so, but the ATO disagrees. If this comes about after the Amnesty period ends, the employer will have no scope to argue that Part 7 Penalties should be remitted further to reflect their lower level of culpability.
Further, Part 7 Penalties are automatically imposed on an employer who fails to lodge a superannuation guarantee statement by the prescribed date. It does not seem appropriate that mere late lodgement should incur such harsh penalties.
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