Source: https://taxbanter.com.au/banter-blog/sg-amnesty-reintroduced/
Timestamp: 2019-11-12 16:18:28
Document Index: 243852556

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The proposed Superannuation Guarantee Amnesty — reintroduced - TaxBanter
Nov 1, 2019 | News, SG Amnesty
On 18 September 2019, the Government introduced the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Bill), which allows non-complying employers to self-correct any unpaid superannuation guarantee (SG) amounts dating back to 1992 under a one-off SG Amnesty (the Amnesty).
On 19 September 2019, the Senate referred the Bill to the Economics Legislation Committee for inquiry. The Committee released its report on 11 November 2019, and recommended that:
the Bill be passed; and
the ATO develops and implements a communication strategy to maximise employer awareness and engagement with the SG Amnesty.
The Committee is confident that the one-off Amnesty provides the best opportunity to address historical SG non-compliance. The Committee heard evidence that the Amnesty will leave no workers worse off and will result in more individuals receiving their full entitlements than would do so if the Amnesty was not in place.
This article explains how the Amnesty will operate once it becomes law.
The original announcement of the Amnesty on 24 May 2018 by the then Minister for Revenue and Financial Services, Kelly O’Dwyer, was unexpected.
The then Minister’s media release explained that:
According to the media release, the ATO estimated that in 2014–15, around $2.85 billion in SG payments went unpaid. The latest estimate of the SG gap available from the ATO is $2.3 billion for the 2016–17 income year.
The Amnesty was one measure among a suite of reforms to protect SG entitlements by:
implementing real-time reporting of payroll and superannuation information through; and
The reintroduction of the proposed legislative amendments into Parliament was announced by Senator Jane Hume, Assistant Minister for Superannuation, Financial Services and Financial Technology. The Minister’s media release states that since the Amnesty was initially announced on 24 May 2018, over 7,000 employers that were eligible for the original Amnesty have voluntarily disclosed historical unpaid SG, and the ATO estimates that an additional 7,000 employers will come forward due to the extension of the Amnesty. It is expected that around $160 million of SG will be paid under the Amnesty.
The Amnesty period:
commences on Thursday 24 May 2018 (being the date that the Amnesty was announced and on which the 2018 Bill was introduced into Parliament); and
ends six months after the day the Bill receives Royal Assent.
The Amnesty applies only to disclosures of previously undeclared SG shortfall amounts that are made during the Amnesty period. T disclosures must relate to a quarter in the period starting when the SG regime commenced and all subsequent quarters until and including the quarter starting on 1 January 2018 — that is, the period from 1 July 1992 to 31 March 2018. This is an astonishing 26 years.
The benefits of the Amnesty will not be available for SG non-compliance that occurs in relation to a quarter starting on or after 1 April 2018.
Under s. 17 of the Superannuation Guarantee (Administration) Act 1992 (the SGA Act), if an employer has one or more individual SG shortfalls for a quarter, the employer is liable for the SG charge (SGC) comprising:
a Part 7 penalty for failing to lodge an SG statement, equal to double the amount of the SGC, i.e. 200 per cent of the SGC payable (the penalty may be partially remitted) — s.59 of the SGA Act; and
Important point regarding non-deductibility of late contributions
s.290-10 prevents a deduction for contributions except under Div 290;
s.290-60 allows an employer to deduct contributions made to a complying fund for SG employees;
s.26-95 denies a deduction for the SGC.
lodging an SG statement — failure to do this subjectsthe employer to the 200 per cent Part 7 penalty.
may be eligible for treatment as an offset under s.23A of the SGA Act (conditions apply, see below);
The Part 7 penalty is imposed at 200 per cent but the Commissioner has a discretion to remit this penalty. See practice statement PS LA 2011/28 and draft practice statement PS LA 2019/D1.
Catch-up SG payments will be deductibile
Catch-up SG payments made during the Amnesty period will be tax deductible, i.e. in the 2017–18, the 2018–19, and/or the 2019–20 income years. This includes payments made to the ATO in the form of the SGC, as well as contributions made directly to their employees’ superannuation funds that an employer has elected to offset against the SGC under s. 23A of the SGA Act.
If the employer enters into a payment plan with the ATO (see below) that extends past the end of the Amnesty period, any payments made after that date will not be deductible.
Where the employer can pay the full SG shortfall amount directly to the affected employees’ superannuation fund(s), the employer needs to complete an approved form and submit it to the ATO.
When the 2018 Bill was before Parliament, the ATO released an SG Amnesty fund payment form which could be submitted electronically through the Business Portal, Tax Agent Portal or BAS Agent Portal. At the time of writing, the ATO has not reinstated the form on its website.
Where the employer is unable to pay the full SG shortfall amount directly to the affected employees’ superannuation fund(s), it needs to lodge the approved form with the ATO.
Commissioner’s ability to remit Part 7 penalties restricted
The Bill proposes that from the day after the Amnesty period ends, the Commissioner’s ability to remit Part 7 penalties on an employer that has failed to disclose to the Commissioner information that is relevant to the amount of the employer’s SG shortfall for a historical quarter covered by the Amnesty will be restricted.
The Commissioner will not be able to remit penalties below 100 per cent of the SG charge payable. According to the EM, this restriction is intended to strengthen the operation of the Amnesty by providing employers with higher minimum penalties for failing to come forward during the Amnesty.
The restriction on remission of penalties will not apply if the Commissioner considers that there were exceptional circumstances that prevented the employer from disclosing SG non-compliance.
The proposed amendments ensure that employees are not disadvantaged as a result of the Amnesty by having late payments of SG covering a number of years possibly resulting in excess concessional contributions.
Commissioner’s discretion to disregard or reallocate a contribution
If an employee exceeds their concessional contributions cap ($25,000 for 2017–18, 2018–19 and 2019–20) due to contributions made under the Amnesty, the Commissioner may exercise his discretion to disregard these contributions:
where the employer pays the SGC amount to the ATO — the employees will not need to apply for the discretion under s.292-465 of the ITAA 1997 (as they ordinarily would). The exercise of the Commissioner’s discretion to make a determination to disregard the excess contribution will be streamlined by allowing the Commissioner to make such a determination on the Commissioner’s own initiative (i.e. a ‘blanket determination’ for affected employees);
where the employer pays the SGC amount directly to the superannuation fund — the employee will need to apply for the discretion under s. 292-465 of the ITAA 1997 and will not be covered by the ‘blanket determination’ mentioned above.
Employees will not be liable for Div 293 tax
2018–19 2019–20 2020–21 2021–22 2022–23 Total
$43m ($10m) $32m $22m $12m $99m
Presumably, the anticipated revenue comprises tax on superannuation fund earnings arising from the catch-up SG amounts paid during the Amnesty period. The estimated $43 million revenue in 2018–19 would also include the contributions tax revenue expected to arise from the payments of historical SG shortfall amounts before the Amnesty ends. It is unclear why there is a negative revenue impact in 2019–20.
While the Amnesty allows the employer to either make payments of SG shortfall amounts directly to the ATO, or make an offsetting contribution directly to the employee’s superannuation fund, it is expected that most employers would pay the SG shortfall amounts to the ATO and not directly to the superannuation funds. An expected consequence would be that, through the Amnesty, the ATO will acquire the details of those employers who have been non-compliant in the past — whether deliberately or through misinformation. The ATO has made it clear that will be no second chances for these employers in the future. Once the Amnesty period ends, full SGC penalties will apply, including a minimum 50 per cent penalty on top of the SGC amount payable.
Single Touch Payroll, which is now compulsory for all employers (other than those with closely held payees who have until 1 July 2020 to start reporting), will help ensure that the ATO can identify non-compliance faster and more easily than it has in the past.
Further, while the Amnesty is optional for employers, whether an employer decides to take advantage of it or not will have a bearing on the consequences if future ATO activity identifies a historical shortfall (i.e. an employer’s failure to make a disclosure under the Amnesty will affect the penalties they face if the ATO subsequently determines that they have not complied with their SG obligations).
Previously, when the 2018 Bill was before Parliament, the ATO had warned that where employers do not self-correct SG shortfalls during the Amnesty, they may face higher penalties in the future. The ATO advised that, in determining any remission of the Part 7 penalty, the ATO will take into account the employer’s ability to access the Amnesty. While the Commissioner must consider the particular circumstances of each case, generally a minimum penalty of 50 per cent of the SGC will apply to employers who could have disclosed during the Amnesty but chose not to. Note that at the time of writing the ATO has not reinstated this previous guidance.
At the time of writing, the Bill was before the House of Representatives. Both Houses of Parliament are next scheduled to sit from Monday 25 November to Thursday 28 November 2019 — this is the earliest time that the Bill could be passed.
Where an employer chooses to disclose and pay historical unpaid SG before the Bill becomes law, the ATO must apply the current law and therefore the ATO will treat this as a standard voluntary disclosure of an unpaid SG amount. This means that the ATO will impose Part 7 penalties and the administration component, and the catch-up payment will not be deductible to the employer.
If and when the Amnesty becomes law, it would be expected that the ATO will communicate to employers that have already paid the full SGC how it would refund the administration component and Part 7 penalty to those employers that are eligible for the Amnesty. Depending on the timing, employers may also need to amend their tax returns to claim a tax deduction for the payment.
All employers should be encouraged to pay their workers’ entitlements in full regardless of any potential tax benefits. An employer’s obligation to pay SG amounts is not a tax akin to payroll tax or Workcover. It is remuneration paid to their employees for their services — albeit paid to their superannuation funds rather than directly to the employees.
We shall monitor the progress of the Bill and report any developments in a future post or via our LinkedIn account.