- If you have made a voluntary disclosure for underpaid superannuation contributions, you should check whether you need to make a voluntary disclosure for payroll tax shortfall.
- If you have your financial statements audited, confirm with your auditor whether checking your superannuation compliance is part of their scope.
- From 8 September 2020, the starting base penalty amount for underpaid superannuation guarantee is 200%. This can be mitigated where a voluntary disclosure is made prior to contact from the ATO.
- The state and territory revenue offices also apply penalty tax for failing to disclose or late payment. However, these can be mitigated where a voluntary disclosure is made prior to contact.
- It is best to take a proactive view to potential tax liabilities and it is harder to argue for penalty tax to be remitted if there is no voluntary disclosure. If you are unsure about your situation, seek professional tax advice.
Effect of the Superannuation Guarantee Amnesty on payroll tax
It is estimated that more than half a billion dollars was disclosed as part of the Superannuation Guarantee Amnesty, which ended in early September 2020 (the Amnesty).
Although an estimated 24,000 employers came forward to declare unpaid or underpayments of superannuation guarantee (SG) to the Australian Taxation Office (ATO) during the Amnesty, there could be additional implications for those employers if they fail to proactively deal with any resulting shortfall of payroll tax.
Like a number of areas in tax, one action in one area of direct or indirect tax may have an equal reaction in another area of direct or indirect tax. In the superannuation area it may be payroll tax.
Some may think it unlikely that the state and territory revenue authorities are to find out about the shortfalls. However, in our practical experience we are seeing a greater prevalence of the sharing of information between federal and state authorities, combined with new technological advancements allowing increased abilities to share and data match taxpayer information.
With Government finances stretched due to the COVID-19 pandemic, we expect to see an increase of tax compliance activities across the ATO and the state and territory revenue authorities in future. It may be that data obtained from the Amnesty will be a catalyst for increased payroll tax investigations.
Payroll tax on superannuation contributions
Apart from a few minor exceptions, the relevant payroll tax legislation in all states and territories has been harmonised.
Payroll tax is payable by employers on ‘wages’ of an employee, which includes superannuation contributions. Each of the state and territory revenue authorities have public rulings confirming that superannuation guarantee charge (SGC) paid under the Superannuation Guarantee (Administration) Act 1992 (Cth) will be subject to payroll tax.
The SGC for an employer for a quarter is made up of the following amounts:
- the total of the employer’s individual SGC shortfalls for the quarter
- the employer’s nominal interest component for the quarter. and
- the employer’s administration component for the quarter.
Where an employer is liable for SGC relating to the current payroll tax, these errors can be easily be fixed by including the relevant amounts in their next payroll tax return.
However, where the SGC amounts relates to a number of years, employers should consider making a voluntary disclosure in all relevant jurisdictions to reduce exposure to any potential penalty tax and unpaid tax interest which may arise.
It is important to also note that payroll tax will only be payable on any SGC amounts and will not apply to any Part 7 penalty imposed under the Superannuation Guarantee (Administration) Act 1992 (Cth).
Penalties on payroll tax shortfalls
Although each of the state and territory revenue authorities have slightly differing policies with respect to the remission of penalty tax for late payments, in the majority of jurisdictions the general practice is to significantly reduce any penalty tax where a voluntary disclosure is made (prior to receiving a reminder or prompt).
For example, in Queensland, the Taxation Administration Act 2001 (Qld) automatically imposes a base rate penalty of 75%. However, this penalty can be reduced to nil where a taxpayer makes a voluntary disclosure prior to commencement of an investigation or prompting from the Commissioner.
Although penalty tax is often able to be remitted to some degree where a voluntary disclosure is made, in our experience most revenue authorities are often reluctant to remit any interest which may have accrued on late payments, except in extreme circumstances.
Application of the superannuation guarantee charge
It is important to be mindful that SGC will apply where:
- an employer fails to pay an employee’s SG contribution by the due date, or
- where the SG contribution payment has been made late, but the employer fails to lodge a superannuation guarantee statement with the ATO by the due date.
If for any reason SG contributions have been made late, employers must lodge a superannuation guarantee statement with the ATO. Failing to do this will mean that SGC amounts (including interest) will continue to accrue until such time as the statement is lodged.
Penalties on SG shortfalls in a post-Amnesty world
Prior to the expiry of the Amnesty on 7 September 2020, the ATO released a new draft practice statement providing guidance to its staff on the circumstances when they can allow a remission of penalties for SGC. The practice statement applies from 8 September 2020.
As employers were offered the benefit of the Amnesty to disclose unpaid SG without significant Part 7 penalties, the Government set expectations that employers who did not voluntarily come forward and had non-compliance identified from an ATO investigation, would be subject to significant penalties.
Where there is no voluntary disclosure and a knock on the door, the starting Part 7 base penalty for an employer who fails to comply is 200% of the SGC amount. While there is scope for the Part 7 penalty to be remitted (in part), however there are strict guidelines as to the circumstances where ATO staff can remit a penalty and limits on by how much.
To avoid a Part 7 penalty altogether, an employer must lodge their SG statement on or before the lodgement due date (or the extended due date where an extension has been granted). From there, the minimum base rates will apply for employers making voluntary disclosures.
The following table has been partially extracted from the ATO’s draft practice statement PS LA 2020/D1.
|DEGREE OF ATTEMPT TO COMPLY||Base penalty equivalent to|
|An employer lodges an SG statement after the lodgement due date but before any ATO contact.||20% of the SGC|
|An employer lodges an SG statement after the lodgement due date and after initial ATO contact (i.e. reminder letters) but before any ATO compliance action.||40% of the SGC|
|An employer lodges an SG statement after the lodgement due date in response to ATO compliance action, for example after an audit has commenced.||100% of the SGC|
These minimum base rates are a starting point only and may increase based on a number of considerations, including the employer’s tax compliance history and other mitigating circumstances.
This article is reproduced with permission from HopgoodGanim Lawyers. The original article was first posted on 4 November 2020. Michael Patane is a senior tax lawyer and a Partner in the Taxation team. Saxon Rose is a Special Counsel in the Taxation practice. Catherine Nufer-Barr is an Associate in the HopgoodGanim Taxation practice and a Chartered Tax Advisor.
How HopgoodGanim can assist
If you are considering making a voluntary disclosure for potential underpayments of payroll tax or superannuation guarantee, HopgoodGanim Lawyers are well placed to assist with providing advice on your circumstances and any potential liability, and dealing with the ATO and the relevant state and territory revenue authorities to make a voluntary disclosure.
Our Taxation team are specialists in Australian tax, superannuation and payroll tax in all Australian states and territories and work exclusively in this space, every day.
All members of our Taxation team have dual qualifications in Law and Accounting, are experts at assisting employers with their superannuation obligations and are well placed to advise on any potential payroll tax consequences and how these can be addressed in a commercial and practical manner.
If you would like further information or to discuss your own circumstances, please contact a member of our Taxation team.