Obligation to pay superannuation guarantee
Generally, if an employer pays an employee $450 or more after tax in a calendar month, the employer is required to pay superannuation guarantee contributions in addition to their salary or wage.
When the SGC scheme was introduced in the early 1990s, the superannuation guarantee contributions were expected to be in excess of wages; that is, wages were not be reduced by the contributions. Since then, remuneration packages are often negotiated to include superannuation guarantee contributions.
Rate of superannuation guarantee
The required rate of superannuation guarantee is currently 9.5% of the employee’s ordinary time earnings. The rate is scheduled to increase to 10% for the year ending 30 June 2022 and then to increase by 0.5% each year until the rate reaches 12% for the year ending 30 June 2026 and future income years.
Obligation to pay superannuation guarantee charge if superannuation guarantee contributions not paid
If an employer does not pay the minimum amount of super guarantee contributions for their employee into a complying superannuation fund by the due date, the employer is liable to pay the super guarantee charge to the Australian Taxation Office (“ATO”). Where superannuation guarantee charge is paid to the ATO, the ATO will then make contributions to the employee’s nominated superannuation fund. Effectively, employers who have not paid their superannuation guarantee contributions have fallen short in paying their employees’ remuneration aside from being in breach of the superannuation guarantee charge law.
Importantly, payment of superannuation guarantee contributions by employers is tax deductible, but payment of superannuation guarantee charge is normally not tax deductible.
However, the Government has announced an amnesty to encourage employers to correct historic superannuation guarantee non-compliance. Legislation to give effect to the amnesty is currently before Parliament and, assuming the legislation is duly enacted, the amnesty period will run from 24 May 2018 to the date six months after the relevant legislation receives Royal Assent (signed by the Governor-General).
During the amnesty period, employers will be able to make good on unpaid employee superannuation guarantee contributions for the period 1 July 1992 to 31 March 2018. An employer can pay the superannuation guarantee charge or pay the outstanding contributions plus interest directly to an employee’s superannuation fund. The payment in either case would be tax deductible.
Superannuation guarantee contributions must be paid at least quarterly. The total superannuation guarantee liability for the September quarter must be paid by 28 October, for the December quarter by 28 February, for the March quarter by 28 April and for the June quarter by 28 July. When a due date falls on a weekend or public holiday, the payment can be made on the next business day.
Where an employer does not fully comply with their obligation to make superannuation guarantee contributions for any given quarter, the employer must lodge a superannuation guarantee statement disclosing their superannuation guarantee shortfall for the quarter.
Calculation of superannuation guarantee shortfall
The superannuation guarantee shortfall for the quarter is normally equal to the total of the employer’s individual superannuation guarantee shortfalls for each relevant employee, the nominal interest component and the nominal administration component. The nominal interest component is calculated at a rate of 10% per annum and the nominal administration component is $20 per employee.
However, when the employer qualifies for the amnesty as discussed above, the amount payable does not include the nominal administration component.
Assessment of superannuation guarantee charge
A superannuation guarantee statement must be lodged with the ATO declaring the superannuation guarantee shortfall.
The superannuation guarantee statement is due on the following 28 May for a March quarter, the following 28 August for a June quarter, the following 28 November for a July quarter and the following 28 February for a December quarter. Lodgment of the superannuation guarantee statement has effect as an assessment of the employer’s superannuation guarantee charge payable.
Where an employer does not lodge a superannuation guarantee statement, the ATO has the power to require an employer to provide information and also the power to make a default assessment; that is, the ATO estimates what the shortfall is.
Superannuation guarantee charge becomes payable on the making of an assessment. The nominal 10% interest component ceases to accrue on the making of an assessment. To the extent the assessed superannuation guarantee charge is not paid when due, the penal rate General Interest Charge will be payable.
Where an employer fails to lodge a superannuation guarantee statement by the due date, the employer is liable to pay, by way of penalty, additional superannuation guarantee charge equal to double the amount of superannuation guarantee charge payable. Usually, this penalty is remitted at least to some extent. For example, full remission would be appropriate when the employer reasonably (but mistakenly) believed that superannuation guarantee was not payable because the relevant persons were independent contractors rather than employees, or where the employer’s records were destroyed by a natural disaster.
When the employer qualifies for the amnesty as discussed above, no penalties will be charged.
ATO powers where superannuation guarantee charge is unpaid
Where superannuation guarantee charge is unpaid and the ATO considers that the employer is not engaging with the ATO in good faith to resolve the situation, the ATO has a range of enforcement powers.
These include director penalty notices, garnishee notices which require the directions to pay the superannuation guarantee charge.
A director penalty notice can impose on a director personally, a penalty equal to the company’s unpaid superannuation guarantee charge.
A garnishee notice is issued to an entity that holds money for the company or may hold money for the company in the future. The garnishee notice requires the recipient entity to pay money held for the company to the ATO to reduce the company’s debt to the ATO.
Employers can be issued with a direction to pay outstanding superannuation guarantee charge by a specified time. When an employer receives a direction to pay superannuation guarantee charge, they must ensure that the the amount included in the direction is paid in full. Non-compliance with the direction is a criminal offence and can result in Court enforced penalties or imprisonment.
Key compliance obligation
Superannuation guarantee is a key compliance obligation of all employers and is taken very seriously by the ATO.