Not paying your employees their superannuation entitlements will now mean you could face jail time.
New laws significantly increase penalties for company directors. The Treasury Laws Amendment (2018 Measures No.4) Bill 2019 (the Bill) has just received Royal Assent and was enacted as law on 1 March 2019.
The new laws give the Australian Taxation Office (ATO) the power to enforce up to 12 months’ jail time or hefty fines for directors of companies that do not to pay their employee superannuation entitlements.
According to Schedule 3 of the Bill, from 1 July 2019, the Single Touch Payroll system will also be extended to all employers, meaning the ATO will have up-to-date information on how much super employers owe to their workers. This will allow for earlier identification of non-payment.
Underpaid super entitlements in Australia for the 2015-2016 year were estimated at $5.9 billion in a recent report by Industry Super Australia (ISA). The study found this amount was owed to over 2.98 million Australians who had been underpaid by an average amount of $1,994 each.
If your company is part of this statistic, then be smart and act quickly to avoid hefty consequences under new laws.
Current Superannuation Guarantee Charge Obligations
At present, if an employer fails to meet their superannuation payments by the quarterly due dates, they need to lodge a Superannuation Guarantee Charge (SGC) Statement with the ATO. The SGC is then payable to the ATO in full or under an ATO payment plan.
The SGC comprises of:
- The employee’s superannuation guarantee shortfall amount,
- Interest of 10% per annum, and
- An administration fee of $20 for each employee with a shortfall per quarter.
Unlike normal superannuation contributions, missed payments under the SGC are not tax-deductible.
If an employer fails to comply with their SGC obligations, it can result in financial penalties, the directors facing personal liability under an ATO director penalty notice or a winding up notice being issued to the company.
New Superannuation Guarantee Charge Obligations
Under the new Bill, which applies retrospectively from the SGC quarter ended 30 June 2018, onward:
- The ATO can give a direction by written notice to a company, requiring it to pay an amount of outstanding SGC, or an estimate of SGC, within 21 days.
- It is an offence if the company does not comply with the payment direction.
- A defence may be available if it can be shown that all reasonable steps were taken to discharge the obligation to pay the liability before the expiry of the direction. You can still be convicted of an offence if the liability is only paid after expiry of the notice.
- The ATO can then apply to court for prosecution of the offence. The result of this may be a fine of up to $10,500, imprisonment for 12 months, or both.
ATO’s Considerations When Giving a Direction to Pay SGC
In deciding whether to give a direction to pay an amount of SGC, the ATO will take into account:
- Your history of compliance with obligations to pay your employees SGC,
- Your history of compliance with other tax laws, such as lodgement of your Business Activity Statement (BAS),
- Whether the amount of unpaid SGC is substantial, having regard to the size and nature of your business,
- Any steps you have taken to discharge the liability to pay the amount or dispute that the liability exists, and
- Any other matters relevant to the ATO.
What Will be Contained in an ATO Direction to Pay SGC
If you receive a written notice from the ATO directing you to pay an amount of SGC, it must:
- Contain the amount of SGC you are required to pay and the quarter to which it relates,
- Specify the period you have to pay which must be at least 21 days,
- Explain the consequences of failing to comply with the notice, and
- Explain how you may have the ATO’s decision to give the notice reviewed.
What to Do if You Have a Superannuation Debt You Cannot Pay
Becoming personally liable for your company’s SGC debt is serious. But facing jail time or fines which you will be required to pay could be devastating. It makes super the first debt you should pay, not the last.
We understand that often business owners aren’t paying super because they can’t afford to even pay themselves. It’s one of the first common signs of insolvency. We therefore recommend the following approach to avoid being issued with an ATO written notice giving a direction to pay SGC:
- Ensure you accurately calculate and pay your superannuation liability to employees’ super funds each quarter.
- If you cannot pay your superannuation for a quarter, lodge an SGC Statement by the due date.
- When you lodge your statement, propose a payment plan to the ATO to reduce the debt. It is preferable to pay the debt before the next quarter is due.
- If you struggling to obtain an ATO payment plan, speak to your accountant, lawyer or us about whether you may be insolvent, and the options to deal with your business’s financial challenges.
Revive Financial specialises in dealing with ATO tax debts, business turnaround and restructuring and business and personal insolvency. To ensure the best outcome for you and your business, get in touch today for a free confidential 30-minute consultation on 1800 560 557.
For more information on director advice, check out our director advice page here.