For many employers, complying with complex superannuation rules is an enormous challenge and despite best intentions, there are occasional errors.
One of the common errors which has been identified in the superannuation reviews conducted by KPMG, is that not all wage types have been included when calculating superannuation. For example certain allowances and one-off payments may have been incorrectly flagged as not being subject to superannuation. While most of the wage types have been included, there may still be a superannuation guarantee shortfall which impacts a number of employees and generally applies over a number of years.
The penalties on the employer for failing to provide the required amount of superannuation are severe, even where the error arises from a simple mistake. The superannuation shortfall can quickly grow to a material amount, especially when the nominal interest component (10 percent per annum), administration fee ($20 per employee, per quarter) and non-deductibility for the employer are factored in. In addition, there can be adverse implications for the employee when the employer makes a late payment of superannuation.
These issues have made it difficult for employers who wish to correct a mistake by paying the Superannuation Guarantee Charge (SGC).
However, the government has recently introduced a bill which will provide a 12 month amnesty for employers who make voluntary SGC disclosures. If enacted, the amnesty will start from 24 May 2018 and will be available until 23 May 2019.
Under the amnesty, employers will still have to pay the superannuation guarantee shortfall amount (calculated based on salary and wages, not Ordinary Time Earnings) and the nominal interest component. The benefit for the employer and employee is that under the amnesty:
- The $20 administration fee will be waived
- The SGC amount will be tax deductible for the employer
- A separate penalty equal to 200 percent of the SGC amount will be waived for the employer
- The SGC amount will be automatically excluded from the calculation of the employee’s concessional contributions cap, potentially avoiding an additional income tax liability for the employee
- The SGC amount will be automatically excluded from the calculation of the employee’s ‘low tax contributed amounts’ for purposes of additional tax under Div293, potentially avoiding an additional 15 percent tax liability for the employee
Employers who previously made an SGC disclosure, and who now come forward with a new SGC shortfall amount, can still benefit under the amnesty.
Once the amnesty finishes, standard SG shortfall processes will apply meaning employers will face additional costs and penalties for failing to comply with their obligations. So now is the time for employers to review their superannuation compliance and fix up any historic errors.