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Late payment of super has always been a problem but now with Single Touch Payroll, it has become a much bigger problem, especially the late payment of super for director wages.
Late Payment of Super
Paying employees super late has always been an issue because it only took one employee to report the late payment to the ATO. But now with Single Touch Payroll (‘STP’), the late payment of super for director wages has also become a problem.
The ATO has become a lot more active in pursuing late payments of SG and late lodgements of SGC statements for anybody, be it external employees or internal directors. And they have become more active because now with STP they can see exactly what is late. And so this has become a critical issue for many of us. Hence the topic for this week.
Here is Adam Ahmed of Adam Ahmed & Co, a tax lawyer in Sydney, discussing the issue with you.
Here is what we learned but please listen in as Adam explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Late Payment of Super
There are nine light bulb moments to be had listening to Adam Ahmed and reading PS LA 2021/3, PS LA stands for Practice Statement Law Administration 2021/3
1 – The ATO has the Data
The ATO has the data now to really drill down into super payments. In the PS LA, they distinguish between pay-event reporting and event-based reporting.
To quote from the PS LA, the ATO says the following: “We have pay-event reporting of SG accruals and event-based reporting of contribution payments from funds regulated by the Australian Prudential Regulation Authority. This information provides us with end-to-end visibility of where an employer has not met their SG obligations for their employees.”
So pay-event reporting of SG accruals – they get that through STP. Through STP the ATO can now see exactly which employee is meant to get what super.
And they have what they call event-based reporting from funds regulated by APRA. So the ATO can’t see SG payments to SMSFs, but they have data feeds from APRA funds. So for employees without an SMSF the ATO can see exactly which employee is meant to get how much super and when that super was paid. when an employer paid super and whether they were late.
2 – Terminology
The superannuation guarantee charge, the SGC, actually consists of four components.
1 – The SG Shortfall itself, that is the actual super that wasn’t paid on time,
2 – interest of 10% per annum from the start of the quarter plus
3 – an admin fee of AUD 20 per employee per quarter.
4- And the fourth component is the penalty. The ATO calls this penalty the Part 7 penalty.
So the SG charge is not just the penalty. It is the shortfall itself, the interest, the admin fee, and then also the Part 7 penalty.
3 – Part 7 Penalty
The penalty – ie. the Part 7 penalty – is all about the late lodgement of the SGC Statement. If you lodge the statement on time, there is no Part 7 penalty. Even if you pay late, there is no penalty, just very high interest, as long as you lodge the statement on time.
If you lodge late, Part 7 penalty applies.
If you lodge on time, all you have to worry about is the admin fee and the interest – and the shortfall itself of course.
4 – Due Date
The SGC statements and the payment of the SGC are due a month after the superannuation guarantee due date.
The SG payments – so payment of the super itself – SG payments are due 28 days after quarter end. So 28 October, 28 January, 28 April, and 28 July.
The SGC Statements and the payment of the SGC itself are due a month after that – so on 28 November, 28 February, 28 May, and 28 August.
5 – No Remissions on Shortfall and Interest
There is no remission on the shortfall itself and the interest. And that makes sense.
The employee is entitled to the super so the ATO can’t remit that. The ATO can’t say to the employee, “Oh, actually you are entitled to this super by law, but we think you shouldn’t get that.” So the ATO can’t remit the shortfall.
The ATO also can’t remit the interest. The employee lost out on potential earnings by not receiving their super on time. So the interest is to make up for that. So the interest is like a victim’s compensation. The ATO can’t remit that either.
So shortfall and interest the ATO can’t remit. And so the PS LA doesn’t even touch on these components of the SG Charge.
6 – Penalty Remission
What the ATO can remit is the Part 7 penalty. Since that penalty doesn’t go to the employee but to the ATO.
The PS LA says, “You have the discretion to remit the Part 7 penalty, in full or in part. This can be done as part of the assessment of the penalty (the original assessment stage) or after the penalty is assessed (through an objection decision).”
And so the PS LA 2021/3 is all about this penalty. It sets out the rules for when and how the ATO can remit what percentage of the Part 7 Penalty.
I haven’t mentioned the admin fee since I am not sure whether that can get remitted or not. It is usually the smallest part of it all and so the focus is usually on the penalty, hence I can’t remember whether it was ever on the table for remission.
7 – 200% Penalty on the Original Shortfall
The Part 7 penalty starts at 200%. That is your automatic starting point.
And this 200% is applied to the original SG shortfall. Whether you have already paid that shortfall or not.
Let’s say the super for the past December quarter is AUD 10,000. You didn’t pay the super on 28 January, so you have a shortfall. But you paid it a week later. And so you have a late payment offset, an LPO. But for the calculation of the penalty, it is as if you hadn’t paid the super yet. Your penalty is still 200%, so AUD 20,000 even though you have already paid the shortfall.
Here is the PS LA outlining this, “If an employer claims a late payment offset (LPO) to reduce their SGC payable, this reduction is disregarded for the purposes of calculating the amount of Part 7 penalty imposed. In other words, the Part 7 penalty imposed is equal to double the total SGC for the quarter if no LPOs were claimed.”
8 – 4 Step Process
When the ATO considers reducing your Part 7 Penalty, they go through a 4-step process. And those four steps are:
Step 1 – Have you paid the SG now? So yes, you were late. But have you paid now?
Step 2 – Have you lodged the SG statement now? So, yes, you were late, but have you lodged now?
Step 3 – Have you had a good compliance history until now? So are you usually a good taxpayer?
Step 4 – Are there any other mitigating facts or circumstances?
These are the four steps the ATO has to go through when talking with you about a remission of penalties.
9 – Three Tables
The ATO can’t just remit penalties willy-nilly, there is a table that outlines exactly how much can be remitted. Actually, there are three tables.
The first table looks at payments. When did you pay what?
The second table looks at lodgements of SGC statements and how far involved the ATO is yet. When did you report SG Shortfalls to the ATO? Before or after the ATO made contact?
And the third table looks at your compliance history. And increases or decreases your discount accordingly.
Based on these three tables your penalty could increase beyond 200% or decrease to just AUD 20 per quarter.
So it is all about where you sit at these tables.
So these were nine light bulb moments regarding the superannuation guarantee charge but please listen to this episode since Adam Ahmed goes into a lot more details than we did here.
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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 27 February 2023
Tax Talks spoke to Adam Ahmed - Director at Adam Ahmed & Co. - for more details.
