Superannuation Guarantee – sticks, but no carrots, in tax compliance for business

01 February 2018

Mark Molesworth , Partner, Tax |

The government has released draft legislation to impose criminal penalties, including up to a year in jail, for employers (including directors of companies which employ staff) who fail to comply with a direction to pay outstanding superannuation guarantee. Effective 1 July 2018, this measure will increase the threats to employers (and directors) for non-payment of superannuation. These threats already include personal liability for the unpaid superannuation, denials of income tax deductions for late payments and potentially crippling levels of penalties.

Superannuation guarantee non-compliance by employers is estimated to cost employees’ retirement savings almost $3 billion per year and the government’s coffers almost $450 million per year. Most of this non-compliance is at the smaller end of the employer spectrum. Further measures to punish those who wilfully fail to comply are clearly warranted.

However, all recent moves in this area have been to increase the size of the stick, without providing any carrots for those who do (or try to do) the right thing. In particular, medium sized and growing employers can struggle with the technical requirements of the superannuation guarantee landscape, particularly the need to pay superannuation on a different cycle to other tax obligations and to pay superannuation to the employee’s choice of superannuation fund. This can lead to an employer with 30 or 40 employees having to make payments to dozens of different superannuation funds.

To add insult to injury, if the employee passes on fund information that is not exactly correct and the payment is rejected, or if an intermediary fails to pass on the money to the superannuation fund on time, it is the employer who is penalised even if they are not at fault.

So how would we reform the administration of the system to provide a carrot to those doing the right thing? 

A comprehensive solution might look like:

  • Employers have the option to pay superannuation contributions to the ATO along with their usual Pay-as-You-Go withholding from wages every week, month or quarter. The data about which employees the payment relates to is transmitted under the Single Touch Payroll system (which will be compulsory for all employers from 1 July 2019 in any event).
  • Payment to the ATO is deemed meet the requirement to make a superannuation contribution on behalf of an employee.
  • The employee nominates their preferred superannuation fund to the ATO through their MyGov account. The employee can change their nominated fund via this same channel. This does a number of things. It takes the administration hassle of choice of fund away from the employer. It encourages Australian workers to obtain a MyGov account and interact with the government on-line, including locating all of their superannuation accounts and (if they want to) consolidating them. And it will mean that the ATO can weed out bogus superannuation funds before they receive any money.

If this government is serious about reducing red tape for business, why not give this type of idea serious consideration. Then those of us who can eat the carrots will be happy for the sticks to be used on those who clearly deserve it.