SGC - What employers need to know
We have seen a rise in the number of enquiries from the Australian Taxation Office (ATO) in relation to employer’s compliance with the Superannuation Guarantee.
This increased activity is in line with a recent announcement by the ATO that they will be conducting additional audits in an attempt to recover the significant amounts of unpaid superannuation.
As a result of the increased audit activity by the ATO and its literal interpretation of the legislation, we thought that we would give a timely reminder to employers to pay their superannuation obligations and to pay on time.
All employers are required to remit Superannuation Guarantee (currently 9.5% of Ordinary Times Earnings)on behalf of their employees by the following dates:
If Superannuation Guarantee is not paid by these dates, it becomes a Superannuation Guarantee Charge (SGC), which includes a penalty component which is not tax deductible when paid. The penalties contained in the Superannuation Guarantee legislation are considerable and as a result, there are significant consequences if an employer’s superannuation guarantee obligation becomes an SGC. These include an increased superannuation liability, interest for late payment and an administration fee.
If an employer fails to pay their Superannuation Guarantee by the due date, they are obligated to prepare and lodge a SGC Statement. This statement requires an employer to calculate their outstanding superannuation, the nominal interest charge and administration charge on a quarterly basis.
The outstanding superannuation obligation is not simply the unpaid Superannuation Guarantee which would have been calculated on Ordinary Times Earnings. It is calculated on the employee’s total wages, including overtime and other amounts that would ordinarily be excluded from the Superannuation Guarantee.
This can increase the superannuation liability of the employer quite significantly, especially when you consider the interest is calculated on the increased amount to include overtime.
The nominal interest charge imposed for the late payment of the Superannuation Guarantee is supposed to bring the employee back into the position that they would have been had the Superannuation Guarantee been paid on time. However, in some instances it can put the employee in a significantly much better position, at the cost of the employer.
Currently interest is imposed at the rate of 10% of the unpaid superannuation on the employee’s total wage from the beginning of the quarter that the unpaid superannuation relates to through to the latter of the due date for lodgement of the SGC Statement or the date that the SGC Statement is actually lodged.
As interest is imposed from the start of the quarter in which the liability arose, an employer who pays their Superannuation Guarantee late could be obligated to pay interest for a period prior to when the obligation arose. Further, under the Superannuation Guarantee legislation it is irrelevant when the employer paid the Superannuation Charge if paid it after the due date, as interest is imposed based on the date the SGC Statements is lodged.
To reduce the interest imposed on outstanding superannuation obligations it is critical that, if an employer pays their Superannuation Charge late, they lodge a SGC Statement by the due date. The due date for the lodgement of the SGC Statement, which is also the due date for payment of the SGC, is dependent upon which quarter the liability relates to. The following summarises the due dates:
In addition to the imposition of interest the Superannuation Guarantee legislation imposes an administration charge. Currently this is $20 per employee per quarter.
To illustrate the effects of the Superannuation Guarantee legislation let’s consider the following example. Ron runs a furniture manufacturing business which is expanding and as a result Ron takes on Sam as a new employee on 18 August 2015. During the months of August and September Sam is paid $3,500 in Ordinary Times Earnings and $1,500 in overtime. Sam forgets to complete his Superannuation Standard Choice Form and gives it to Ron on 31 October 2015. As soon as Ron receives the form he pays Sam’s superannuation of $332.50 (9.5% x $3,500), 3 days after the due date of 28 October 2015. Ron is unaware of the impact of the late payment until his accountant raises the issue with him when preparing the 2016 financial statements and income tax returns in April 2017. Ron’s accountant prepares the SGC Statement and lodges it on 21 April 2017. The accountant then advises a very bemused Ron that he has a further liability of $248.26 because he paid the $332.50 superannuation contribution three days late.
The additional liability is calculated as follows:
In addition to the above SGC, Ron could have been liable to further penalties of up to 200% of the outstanding superannuation if the late payment was discovered by the ATO during an audit.
Ron doesn’t understand why he has to pay the SGC stating that it was the employee’s fault that the Superannuation Guarantee was paid late. Unfortunately for Ron the ATO are currently taking a literal view of the legislation which doesn’t provide for any discretion to accept that the nonprovision of the superannuation details by an employee as a legitimate reason for the late payment. In this instance Ron should have made the payment to a default fund by the due date. As a director of the company Ron could become personally liable for the company’s SGC liability if the company fails to pay it.
The above example demonstrates the impact of the Superannuation Guarantee penalties. The only way that employers can avoid the imposition of these penalties is to pay their Superannuation Guarantee obligations on time.
If you have not paid your Superannuation Guarantee on time or have any concerns regarding your exposure to SGC please feel free to Contact one of our team.
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