Increased ATO audit risk around timing and accuracy of SG payments
We are embarking on a period of change from conventional historical reporting to real time reporting with the introduction of Single Touch Payroll (STP). For employers this will mean that both the ATO and employees themselves have unprecedented access to information about SG and payroll related payments in virtually real time as STP is fully implemented.
It will logically follow that ATO audit activity regarding non-compliance in these areas will exponentially increase with the additional transparency and we are already starting this play out.
The ATO says that non-compliance with super contributions is mostly seen with small businesses and industries that mostly pay employees in cash or as contractors. This said, many employers suffer from poor cash-flow and at times this leaves them unable to pay their superannuation obligations when they are due.
All Superannuation Guarantee payments are to be paid, and received by the relevant superannuation fund, before the 28th day following the end of the quarter as shown in the table below.
Employers that do not pay their employees' super on time and in full are required to pay a superannuation guarantee charge (SGC).The SGC is calculated as the sum of:
| SG Quarter
|| SG Due Date
| 1 July - 30 September
|| 28 October
| 1 October - 31 December
|| 28 January
| 1 January - 31 March
|| 28 April
| 1 April - 30 June
|| 28 July
- The shortfall amount – superannuation payable calculated on employees' salary and wages, rather than their ordinary time earnings (OTE)
- A nominal interest component of 10 percent of the shortfall amount from the beginning of the quarter in which the contribution was required to be made until the lodgement of an SGC statement (note – late payment of the SG does not stop the interest from accruing), and
- A $20 administration fee per employee.
Example of the potentially costly impact of the SGC
An employer with 20 employees had a super liability for the March 2019 quarter of $19,000 (based on OTE of $200,000). The total salary and wages (which includes other amounts such as overtime and allowances) paid to employees for the quarter was $220,000.
The employer pays the super guarantee of $19,000 in full on 29 April 2019 (just one day late). Assume the employer is subject to an audit three years in the future and submits SGC forms to the ATO on 5 May 2022. The employer also makes the Late Payment Offset Election (LPOE) to offset the super guarantee paid late against the SGC.
The SGC payable by employer would be approximately $8,570, comprised of the following:
- Shortfall amount of $20,900 (being total salary and wages of $220,000 x 9.5 percent)
- Interest of $6,270
- Admin fee of $400
- Less: LPOE amount of $19,000
The SGC payable is significant considering the actual amount of SG contributions of $19,000 was only paid one day late.
In addition to having to pay the SGC, employers should be aware of the other potential penalties and consequences of not meeting their super obligations:
- The entire SGC amount (that is the shortfall, the nominal interest and the administration charge) is not tax deductible, nor can any application for remission be made
- General interest charges also accrue on the SGC until it is paid
- The ATO can impose other penalties. For example, the maximum penalty for failing to provide an SGC statement when required is 200 percent of the SGC payable
- Directors of a company that fails to meet an SGC liability in full by the due date can become personally liable for a penalty equal to the unpaid amount.
What should you do?
If you are unsure whether superannuation is applicable to a particular contractor or have been unable to pay your superannuation obligations by any of the relevant quarter end dates, please contact us as soon as possible so that we can assist with advice or with the preparation of the SGC forms required and help minimise any applicable penalties.
If you have any questions, please contact us.
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