Understanding superannuation guarantee charge and avoiding part 7 penalties

Most business owners and employers understand their basic obligation to report and pay superannuation for eligible staff. Many are also aware of the Superannuation Guarantee Amnesty which allowed employers to disclose and pay previously unpaid Super Guarantee Charge (SGC) without incurring administration charges or penalties. With the amnesty ending in September 2020 and with ATO enforcement activity on the increase, it is timely to revisit your obligations to avoid significant penalties.

Employers can avoid Super Guarantee Charge by paying employee super contributions to a complying fund or retirement savings account. Importantly, contributions are considered to be paid on the date they are received by the super fund. Alternatively, if you use the Small Business Superannuation Clearing House, payments may be considered ‘paid’ on the date they are received by the clearing house.

Superannuation Guarantee Charge

Sometimes, unforeseen circumstances arise and payments are delayed or missed. When this occurs, you must:

• Lodge a Superannuation Guarantee Charge (SGC) statement to the ATO and
• Pay the SGC to the ATO

The Super Guarantee Charge is more than the super you would otherwise have paid and includes:

• Super calculated on salary and wages (including overtime) and any ‘choice liability’ based on the shortfall (and capped at $500)
• Nominal interest of 10% per annum accruing from the start of the relevant quarter and
• An administration fee of $20 per employee per quarter.

Whilst superannuation payments are tax deductible, Super Guarantee Charge is not.

The best strategy is to adopt a direct approach and make voluntary disclosures to the ATO. An inability to make payments should not deter you from this course of action. If you do not lodge the SGC statement by the due date, a Part 7 penalty will apply.

Part 7 Penalty

The Part 7 penalty is an additional SGC (of up to 200% of the SGC) imposed on an employer for failing to provide an SG statement or information related to assessing the employer’s liability to pay SGC for a quarter.

Whilst ATO officers have discretion to remit Part 7 penalties, they are required to apply a multi-step process with consideration of:

• Your attempts to comply with SGC obligations
• Treatment of your late payment offset claims
• Your SG compliance history and
• Any other relevant facts and extenuating circumstances

It is important to remember that the ATO have pay-event reporting of SG accruals and event-based reporting of contributions from APRA regulated funds. This necessitates the careful administration of your superannuation program and a proactive approach if you find your business has failed (or is likely to fail) to meet a key superannuation due date (see Table 1 below).

If you are encountering difficulties understanding or navigating your superannuation obligations, contact your trusted Ashfords advisor as soon as possible. We offer various support including:

• Administering your super reporting and payments program
• Acting as your advocate in communications with the ATO.

Table 1: Key Superannuation Due Dates