No guarantees in super

In May this year, the government introduced a one-off 12-month amnesty period for small businesses to address any historical underpayment of superannuation entitlements, dating all the way back to when the superannuation guarantee (SG) was first introduced in 1992.

In announcing the SG amnesty, then-minister for revenue and financial services Kelly O’Dwyer said it will allow “employers to wipe the slate clean and pay their workers what they’re owed”. The government then noted the SG amnesty would run from the day of the announcement, 24 May, with the assumption that the legislation putting it in place – the Treasury Laws Amendment (Superannuation 2018 Measures) Bill 2018 – would pass through Parliament shortly after. However, there was just one problem.

As of September, the legislation is still yet to pass, a full three months after the initial announcement. With Labor stating their opposition to the SG amnesty shortly thereafter, the current state of the SG amnesty continues to be in limbo.

Unintended risks

As a result, the limbo could lead to risks for small businesses, notes DBA Lawyers director Daniel Butler and lawyer Christian Pakpahan.

“The many employers that have already made disclosures to the ATO on the basis of the proposed amnesty may have therefore been misled. However, the ATO will broadly treat these as voluntary disclosures if the SG bill fails to become law,” they say.

“Further, there are still a number of serious modifications required to be made in order to make the amnesty an appropriate basis for employers to come forward with legal certainty. Indeed, it would be preferable for the law to be introduced and passed before an amnesty of this nature is announced.”

Mr Butler and Mr Pakpahan say super contributions made under the amnesty would broadly be considered concessional contributions, meaning employees may exceed their $25,000 annual concessional contributions cap.

They add that, generally, employees are not subject to tax on their concessional contributions, but concessional contributions in excess of the contributions cap are included in the employee’s assessable income, meaning the employee could also be liable to pay the excess concessional contributions charge.

“The amnesty partly circumvents this where contributions are made by the ATO on behalf of the employer by streamlining the exercise of the ATO’s discretion to disregard contributions in relation to a financial year where contributions are made by the ATO on behalf of the employer due to the amnesty,” they explain. “However, the exception does not apply where the employer has made the contributions directly to an employee’s fund under the amnesty and has used those contributions to offset their SG charge liability.”

In addition, Mr Butler and Mr Pakpahan also highlight the broad definition of the term ‘examination’ as stated in the explanatory memorandum of the SG bill. Because it refers to the ATO’s views on the meaning of ‘examination’ as explained in its ruling in MT 2012/3, it covers not only traditional audits that the ATO undertakes to ascertain an entity’s tax-related liability but also any examination of that entity’s affairs.

“A range of compliance activities undertaken by the ATO may involve an examination of an entity’s affairs, including reviews, audits, verification checks, record keeping reviews/audits and other similar activities. This means that any of those compliance activities may disqualify an employer from being eligible to access the amnesty for that relevant quarter,” say Mr Butler and Mr Pakpahan.

Could the amnesty have been handled better?

Thus, it is unsurprising that skepticism persists around how many non-SG-compliant businesses will come forward to take up the SG amnesty. For the chief technical officer of Sky Accountants, Ashley Carmichael, he is unsure of the motivation behind it, saying it “smells a little bit like an information-gathering exercise”.

Mr Carmichael says such businesses have obviously flown under the radar without the amnesty in place and have not done the right thing up to this point. He suspects many of them will continue to fly under the radar, believing it would be unwise to notify the ATO of their historical non-compliance.

“It’s more about making themselves known, so to speak, as a business that’s been non-compliant in the past. No business really wants the ATO’s attention,” he says. “I think they would be fearful that putting their hand up for this could lead to audit activity in the future.”

Even though he says many accountants will certainly be pushing the SG amnesty on their clients, Mr Carmichael thinks a lot of small businesses would be fearful of disclosing their issues.

“What you’re seeing is that when businesses struggle, there are certain types of payments that stop getting made, and the Tax Office is generally one of the first ones who stop getting paid. Then it’s the employee super, and so on and so forth,” says Mr Carmichael. “By-and-large, it’s not businesses that are maliciously choosing not to pay their super to employees. It’s businesses that just simply got themselves into a very bad cash flow position and can’t pay it.”

A better alternative, according to Mr Carmichael, would’ve been to create a ‘blanket’ amnesty that doesn’t require businesses to notify the ATO in any way, and simply have it as a period of time within which they need to catch up on their super contribution payments.

“If they do subsequently review an employer and they find that they got their payments in by the due date, then accept that and give them the amnesty. But I think if there was no requirement to declare yourself, and the requirement was simply about getting your payments up to date by the end of the 12-month period, then I think a lot of businesses would make a significant effort to do so,” says Mr Carmichael.

“It’s just that declaring yourself to the Tax Office that makes a lot of small business people nervous and, particularly, in light of some of the more recent stories about how the ATO can be a bit heavy-handed. I think there’s good reason for small business to feel like there might be some ulterior motives there, and they’re certainly doing a bit of a cost-benefit analysis about whether the advantages of the amnesty are outweighed by the risks that may be presented in [the] future.”

Where from here?

Despite the SG amnesty not currently being law, the Institute of Public Accountants has revealed there are already a number of employers who have come forward to take up the amnesty. With the benefit of hindsight, IPA general manager technical policy Tony Greco says the amnesty period really should’ve started from the date that the law would be enacted rather than 24 May when it was announced.

“Let’s say this thing gets through some time in August. You’ve already lost part of May, June, July and part of August,” he says.

“Cash flow ticks in too, so the business has less time to take advantage of the amnesty. Whether that is still an option remains to be seen.”

Regardless of whether the SG amnesty comes into being, Mr Greco says employers are still meeting an obligation that the law requires them to should they come forward, even though they may not get the full concessionary benefits of the amnesty. He suggests affected businesses go into that disclosure with open eyes and say to themselves, “OK, if this doesn’t become law, then I have to wear the brunt of the penalty regime”.

“Technically, you can bring more compliance to accountants under this amnesty if you have the cash flow to do so. For some people this might be the way it happens, where employers might realise that this is their best opportunity to come clean,” says Mr Greco.

“At the end of the day, it was an obligation that the business hadn’t dealt with, so they’re going to get clobbered by the penalty and that is non-deductibility of the payment, which is quite severe, and the admin fee and potentially some of those other interest.”

One thing the SG amnesty has most definitely achieved is to send a clear and simple message to small businesses – employers should be paying super to their employees on time and in full.

“What the amnesty is doing is making good on an employer obligation to satisfy employee entitlements in full,” Mr Greco says.

“At the end of the day, it’s entitlements that are due. If you focus just on that and say, ‘OK, let lying dogs lie’, then it’s a good thing – this once-in-a-lifetime opportunity to clean the slate going back to 1992.”