Superannuation Guarantee Charge
As compulsory superannuation has been around for over 20 years, I would hope that at this point in time all employers know that superannuation guarantee is payable on their employees’ ordinary time earnings, which excludes overtime and a few other things. What I have come to realise is that a lot of employers just don’t know how important it is to ensure that it is paid, in full and on time, as failing to do so can have significant consequences.
Superannuation liabilities can add up to a fair amount over a quarterly period. Most businesses also have their GST, PAYG Withholding and Instalments due around the same time so cash flow can dry up a little. It is then that it might be tempting to just not worry about paying the superannuation contributions by the due date. No one ever complains, you don’t have the ATO calling you asking for payment or creditors withholding supplies because of overdue accounts, so it’s an easy one to leave off the list. And that is where you get caught.
Having dealt with a couple of these situations recently, the employers had no idea of exactly what it meant if they paid their superannuation late, even by one single day.
Tax implications and paying more
As soon as superannuation guarantee is late, it becomes what is called Superannuation Guarantee Charge (SGC). The most drastic consequence of SGC to the employer is that those contributions can no longer be claimed as a tax deduction. If you are trading through a company structure, this means that you have effectively lost 30% of the value of the superannuation contribution in tax. Secondly, the superannuation guarantee charge is now calculated on the full salary and wage amount which includes overtime, allowances, etc.
So now, not only is what you have to pay not deductible but you also have to potentially pay a lot more.
As the employer, you are also required to complete superannuation guarantee forms and lodge these with the ATO. This can be quite a tedious process. From completing these forms, an interest amount (currently 10%) is calculated on the overdue SGC which is calculated from the first day of the quarter that the superannuation guarantee wasn’t paid to the day that the forms are lodged. The ATO also charges a $20 administration fee per employee, per quarter for which superannuation has been paid late in order to process these forms. When you lodge these forms you are then to pay the ATO for any amounts calculated and not directly to the employee’s nominated funds.
If you fail to complete these forms and just pay the superannuation contributions late don’t think you’re out of the woods. If you get an audit later on by the ATO (who can look back up to 4 years) you will be required to fill the forms out and pay the interest amounts right up until the day they are eventually lodged, regardless of when you actually paid the superannuation contributions. These payments can be applied to reduce the SGC amount payable for each employee, but it won’t reduce the interest charge that’s calculated.
There are other penalties the ATO can impose if the forms are never lodged and default superannuation guarantee charge assessments are raised. This can be up to 100% of the superannuation guarantee shortfall amount.
Are the penalties negotiable?
The commissioner has no discretion to reduce the interest, administration charge or allow deductibility of the contributions of paid late. This is because the SGC legislation is there to protect employee entitlements and is written with no concessions.
So, next time it comes time to pay superannuation guarantee at the end of the quarter make sure that it makes the top of your list.
Below is a table showing the due dates for each of the 4 quarters:
|1||1 July – 30 September||28 October|
|2||1 October – 31 December||28 January|
|3||1 January – 31 March||28 April|
|4||1 April – 30 June||28 July|
As a side note, the Government tried to introduce amendments to the Superannuation Guarantee Charge last year that were to take effect from 1 July 2016. These amendments were dropped earlier this year so as to not reduce the penalties for non-compliance in this area.