This article was originally published 27 November 2020.
The Superannuation Guarantee (SG) Amnesty closed on Monday 7 September 2020. The purpose of the SG amnesty was to allow employers to disclose unpaid or underpaid amounts of superannuation and make payment without incurring the administrative penalty or administration component, and to claim a tax deduction for the Superannuation Guarantee Charge (SGC) amounts paid. We also note the SG amnesty only applied for quarters up to 31 March 2018. Accordingly, any disclosures made prior to 7 September 2020 for shortfalls or late payments of SG for quarters from the June 2018 quarter were not eligible for the SG amnesty’s benefits.
Organisations may discover shortfalls after the closing of the amnesty. If you discover a shortfall of superannuation payment, we encourage you to make a voluntary disclosure to the Australian Taxation Office (ATO) as soon as possible. Please note the amnesty will not apply to any SG disclosures lodged after 11:59 PM 7 September 2020.
If you determine you have a SG shortfall, please take the following steps:
- Determine the SG shortfall for each employee for each quarter
- Prepare and lodge the SGC statements
- Pay the SGC to the ATO
- Request remission of the Part 7 penalty*, should you wish to do so
- Await an amended assessment from the ATO, which will be issued once the SGC statements and payment have been processed.
*Under Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SGAA), this additional SGC (Part 7 penalty) is up to 200% of the SGC amount. Benefits of the amnesty included not having a Part 7 penalty applied.
Practice Statement Law Administration PS LA 2020/4
The ATO has recently finalised Practice Statement Law Administration PS LA 2020/4 on 19 November 2020, which outlines the Commissioner’s approach to determining the additional SCG charge following the conclusion of the amnesty. It states that once the SG amnesty period ends, ATO officers cannot remit the Part 7 penalty below 100%. However, there are exceptions for when the employer voluntarily lodges an SG statement prior to being notified of any ATO compliance action, and when exceptional circumstances apply. That is, when exceptional circumstances prevented the employer from lodging an SG statement during the amnesty period or before the employer was notified of ATO compliance action.
The PS LA outlines the four-step penalty remission process ATO officers will need to follow when deciding whether it is appropriate to remit the Part 7 penalty down from 200%. The four steps are:
- Setting a base penalty based on the employer’s attempt to comply with their SGC obligation
- Determining any penalty uplift based on the employer’s compliance history
- Identifying other mitigating facts and circumstances
- Identifying any exceptional circumstances that prevented lodgement of an SG statement prior to the notice of ATO compliance action.
The PS LA notes that the maximum base penalty of 200% of the SGC will be levied where the employer has demonstrated history of repeat disengagement, or the employer took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities.
If the employer has a good compliance history, the penalty should remain at the base penalty level. If the employer has a poor compliance history, the ATO will uplift the base penalty. Examples of poor compliance history include where the employer has:
- Demonstrated a history or habit of lodging SG statements late
- Previously been issued with an SG education direction, and their repeated behaviour indicates they have not taken the lessons from that direction on-board
- Previously been issued with an SGC default assessment and has shown no improvement in behaviour
- Not adequately been addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising
- Several outstanding lodgements relating to other taxes.
The ATO will then take into account mitigating factors and circumstances such as the following:
- The malfunction or outage of a key ATO system and the employer can demonstrate this caused them to narrowly miss the lodgement due date
- Ill health of the employer or a key employee of the employer
- The employer has provided evidence they have taken steps to mitigate the circumstances that contributed to their non-compliance with their SG obligations (noting that a promise or agreement to do so is not sufficient evidence)
- The employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience
- The employer has made an unprompted voluntary disclosure of their SGC liability for a quarter and the facts indicate the shortfall arose because of an error or honest mistake
- The employer made all required contributions, but was late in paying by a small period
- The employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour.
Now that the draft practice statement has been finalised, the finalised practice statement applies from 8 September 2020, after the SG amnesty period ended.
The closure of the SG Amnesty highlights the need for organisations to take a proactive approach to their SG compliance requirements. The ATO will no longer provide leniency for failing to meet requirements, so organisations should take action to ensure their processes and reporting are robust and capable of meeting the ATO’s requirements.
If you have any questions, please get in touch with your local BDO adviser.