To Lodge Or Not To Lodge? Should Outstanding SGC Returns Be Lodged Despite The Superannuation Guarantee Amnesty Delay?
Since the Government announced its 12-month Superannuation Guarantee (SG) Amnesty, there’s been a fair bit of confusion. This is largely because, despite being introduced into Parliament on 24 May 2018, the law has not yet been passed. In fact, there’s no certainty it will be.
This leaves business owners in a quandary. Do they disclose their outstanding ATO super debts now in anticipation of the law being passed? Or do they hold off until it comes into effect?
Superannuation Guarantee Amnesty Recap
To summarise, the Superannuation Guarantee (SG) Amnesty gives business owners a 12-month window – 24 May 2018 through 23 May 2019 – to voluntarily come clean and pay any outstanding ATO super debt incurred prior to 31 March 2018. If they do:
- No related administration charges and late SG payment penalties will be applied
- Catch-up SG payments made during the 12-month period will be tax deductible
On the other hand, if they fail to voluntarily disclose before the amnesty ends, or the ATO carries out an SGC audit, these incentives will be unavailable. In addition, penalties will increase to a minimum of 50% on top of the super owed.
The Lodgement Dilemma
If the Amnesty had already passed, disclosure is, of course, the smart financial choice. However, because the law is still being debated in parliament, business owners may be tempted to delay submitting their quarterly SGC returns – but this is a risky decision.
By delaying submission, they could face the standard administration charges and penalties, and lose the ability to claim a tax deduction for the payments. This means they’ll have a larger debt, plus may have greater difficulty negotiating arrangements with the ATO.
In our view the only valid reason for non-lodgement is if a company is insolvent and instead needs to promptly look at liquidation or administration.
Implications Of Non-Disclosure
In addition to having to pay the standard SG fees and charges for failing to lodge, businesses may face additional penalties for two main reasons: directors’ liability and ATO audit exclusion.
Directors are personally liable for their company’s SGC debts. However, liability can be avoided if outstanding debts are lodged in their quarterly SGC returns on time, or within three months of their due dates.
In these cases, the ATO may issue a ‘21-day’ Director Penalty Notice (DPN). This gives a director 21 days to appoint a liquidator or administrator to avoid personal liability.
If a business owner didn’t disclose their outstanding debts up to 31 March 2018 by 28 July 2018, they cannot avoid personal liability. The ATO will notify a company director of such liabilities under a ‘lockdown’ DPN. However, if a business owner has an outstanding debt for the quarter ending 30 June 2018, they should look to lodge a Quarterly SGC Return before 28 November 2018 to avoid a lockdown DPN.
Given that $2.85 billion in SGC went unpaid in 2014/15, and in excess of $200 million is written off each year, there’s a worrying level of potential personal exposure for directors.
ATO Audit Exclusion
If a business owner fails to disclose their outstanding debt, and the ATO conducts an audit, generally instigated by an employee complaint, they cannot take advantage of the Amnesty.
According to recent data submitted by the ATO to the Senate Committee, the number of employees who lodged complaints against their employers rose from 8,220 in 2016/17 to 12,903 in 2017/18 – a leap of 56%. As a result, nearly 17,000 businesses had their super records checked by the ATO in 2017.
If a liability is identified during the audit, not only will the company be excluded from the Amnesty, but they may also face additional charges and penalties.
What If A Business Can’t Pay?
If a company can’t afford to pay their outstanding super debt, they should submit a proposal for an ATO payment arrangement at the time of disclosure.
Where a business owner is concerned about their ability to offer an acceptable payment plan, they may wish to consider a tax debt loan. This would provide them with the funds to pay the debt or make an up-front part payment to secure the arrangement.
In instances where a debt is too big and the company has no, or limited, prospect of paying super, insolvency advice should be sought prior to lodging the outstanding returns to avoid the associated professional expenses.
Accessing The Amnesty
During the amnesty, outstanding SGC debt can be disclosed to the ATO in two ways:
- If the debt is being paid in full direct to the employees’ super funds, businesses must fill in a SG Amnesty fund payment form.
- If the debt cannot be paid in full a payment arrangement is required, businesses must fill in a Super Guarantee Amnesty ATO payment form.
The super amnesty has certainly made businesses, and advisors, question whether they should submit SGC returns now or hang back. However, choosing the latter is a risky move, affecting the viability of a business. To avoid further charges and penalties, and additional debt, lodging as soon as possible, or alternatively seeking insolvency assistance, is the best advice.
Still have questions about the Amnesty and how it affects your clients or business? Contact Revive Financial today.
For more information on director advice, check out our director advice page here.