Superannuation

ATO to get stronger powers to crack down on unpaid superannuation: Here’s what it means for your business

Emma Koehn /

The federal government plans to hand the Australian Taxation Office additional funding to catch out employers who fail to pay their staff correct superannuation amounts, after reports from a range of agencies suggested the vast majority of non-payments come from small business owners.

On Tuesday, Minister for Revenue and Financial Services Kelly O’Dwyer said a new package of legislation, which includes requirements for super funds to report data to the ATO more frequently and gives the tax office greater powers in issuing director penalty notices, will stop employers from hiding from their “legal duty”.

The total value of unpaid super contributions each year has been estimated at up to $3.6 billion, while a memo from the tax office released this week suggests the gap between what employers should be paying and what they actually pay staff amounted to $2.85 billion in 2014-15.

Small businesses are a key focus in the fight against unpaid super, and should the government’s reforms be realised, it says it will be easier to track those making errors.

Here’s what you need to know.

How would the reforms change the ATO’s approach?

The reforms would cover how super funds would have to communicate with the tax office, how the ATO can chase employers, and how the ATO can seek court-ordered penalties.

The changes include:

• Requiring super funds to report contributions they receive into their funds to the tax office at least monthly, so non-payments can be better tracked;

• “Strengthening” director penalty notices that the ATO can issue when an employer fails to be compliant, and using a security bond when an employer is considered high-risk — although exact details of this have not yet been revealed;

• Allowing the tax office to seek court-ordered penalties against employers in serious cases, such as when repeat offenders fail to repair the situation;

• An earlier commitment from the government to close a loophole to stop employers from reducing their super guarantee payments to below the 9.5% requirement in cases where employees are salary sacrificing into super.

Head of policy at CPA Australia Paul Drum says the reforms look as though they are striking a good balance to protect workers, but says “additional reporting should increase compliance costs for [super] funds”.

Why are SMEs in the firing line?

The reform package is a response to a report from a cross-agency investigation into superannuation non-compliance released in January this year.

Drawing on data from a range of government agencies, the investigation found 97% of reports of unpaid super made to the ATO are about small business employers. The report signalled authorities should be focused on those employers as well as those who employ themselves within incorporated businesses, who may not realise that by keeping money in their businesses instead of paying themselves the superannuation guarantee, they are not complying with the law.

Retirement planning experts have previously told SmartCompany that even if an individual is paying their own wages, a failure to also pay themselves super could open them up to penalties.

Over the past six months regulators and experts have asked for more action to be taken to track how employers pay super in real time. Earlier this year, Inspector-General of Taxation Ali Noroozi suggested random audits should be performed to catch any irregularities in the records of SMEs.

What are the current penalties?

If a business is found to have not paid correct super entitlements in time, the tax office can already pursue a range of charges and penalties.

This includes an initial “super guarantee charge”, which includes an interest charged for unpaid super and and administration fee of $20 per employee each quarter that the right payments aren’t made.

The tax office can also seek director penalty notices to start proceedings to recover lost super from an employer directly.

Employers may also be liable for a range of other penalties, including if they pay less super than is required or fail to keep records. The tax office outlines liabilities for these issues here.

How is Single Touch Payroll involved?

Minister O’Dwyer has said moving all Australian businesses to the Single Touch Payroll processes over the next two years should hopefully remove the burden of administration involved in superannuation payments and ensure workers get paid sooner.

In a statement on the proposed reforms, she highlighted that all employers with 20 or more staff will be required to use Single Touch Payroll processes by July 2018.

Smaller employers will be expected to start transitioning to the system by July 2019.

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Emma Koehn

Emma Koehn is SmartCompany's senior journalist.

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  • Shane

    Good, I’m sick of my competitors not paying their tax and super, these same companies then go out and undercut all the businesses that do the right thing because they don’t have to allow for the extra overheads.

  • Robert M

    In the paragraph headed ‘Why are SMEs in the firing line?’, in the sentence about small business people paying themselves, you should have mentioned that this requirement is ONLY necessary for those small businesses who are companies.

    This section of the article only applies to 30% of small businesses who are companies and not the 70% of small businesses who are sole traders, partnerships and trusts. They have no such obligation and would be misled by this information.