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How to Avoid Superannuation Guarantee Penalties

Imagine this: you’re an employer who has accidentally missed your quarterly superannuation guarantee (SG) obligations. Suddenly, you find yourself facing severe penalties from the Australian Taxation Office (ATO). However, you can avoid superannuation guarantee penalties.

Did you know? You can only claim tax deductions for super guarantee payments if they are paid on time during the financial year. This applies regardless of whether your accounts follow a cash or accrual basis. Additionally, contributions are considered paid when they are received by the super fund.

STP Era to Avoid Late Super Guarantee Payments

With the implementation of the Single Touch Payroll (STP) reporting services, which became mandatory for most employers from 1 July 2021, significant changes have occurred. Consequently, the ATO and superannuation funds have enhanced their ability to detect late super guarantee payments. In other words, it’s harder than ever to slip under the radar!

The Magical Formula to Avoid Penalties

Missed Payments = Non-Tax-Deductible Superannuation Guarantee Charge (SGC)

Employers who have missed their employees’ super payments are obligated to pay a non-tax-deductible Superannuation Guarantee Charge (SGC). The SGC consists of three components:

  1. The shortfall amount (calculated based on employees’ salary and wages rather than ordinary time earnings)
  2. Any choice fund liability cap at $500
  3. A nominal interest component (currently 10% per annum) from the beginning of the quarter until the lodgement of an SGC statement
  4. A $20 administration fee per employee, per quarter

Mark your calendars! The due date for payment of the Super Guarantee Charge and lodging the statement is one calendar month after the super guarantee due date, as indicated in the table below:

QuarterPeriodSuper guarantee due dateSGC & statement due date
11 Jul – 30 Sep28 Oct28 Nov
21 Oct – 31 Dec28 Jan28 Feb
31 Jan – 31 Mar28 April28 May
41 Apr – 30 Jun28 Jul28 Aug
(Table: Due dates for the Superannuation Guarantee Payment)

Additional Penalties and Consequences

In addition to the SGC, employers should be aware of the potential additional penalties and consequences of not meeting their super obligations. These include:

  1. Non-tax-deductibility of the entire SGC amount (shortfall, nominal interest, and administration charge)
  2. Potential penalties imposed by the ATO (e.g., up to 200 percent of the SGC payable for failing to provide an SGC statement when required)
  3. Personal liability for company directors who fail to meet an SGC liability in full by the due date

This would mean if you use the super guarantee paid to offset the Super guarantee charge, then the super guarantee you paid will lost the deductibility.

Recently, draft legislation has been released by the government, proposing criminal penalties, including up to 12 months of imprisonment, for employers (including directors) who fail to comply with a direction to pay superannuation guarantee penalties.

A Cautionary Tale

Let’s take a look at a real-life case study involving a client of EndureGo Tax. Due to the COVID-19 pandemic, the client missed their super guarantee obligations for the quarters ending on 30 September 2021 and 31 December 2021. They also failed to lodge the SGC statement within one month of the quarterly due dates. Consequently, the client incurred an SGC payable of approximately $89,040, comprising the penalty amount, interest, and administrative fees.

The original super guarantee is $43,000 for the employees, based on the wages of $430,000, however, because they did not paid the super guarantee on time meaning the fund did not receive the superannuation payment by the 28th of October and November, and they did not do the Super Guarantee Charge Statement within the due date of the SGC. The SGC is the 43,000 + another 43,000, plus the interest component of around $3,000 plus the admin fee of $40, which is around $89,040.

Our team of business tax accountants in Sydney CBD were able to assist with the SGC review, and successfully help them to waive the Superannuation Guarantee Charge of $43,000, remember the $43,000 charge is non deductible. However, by doing this the client lost the deductibility of the $43,000 super guarantee, which is around $10,750 of tax benefit (25% of the $43,000). The penalty and the admin fee would be deductible, the interest would go into the member account.

It is important to point out, that if our client fails to provide the SGC to the ATO by the 28th November and 28th January, then they are liable to pay 200% of the total superannuation guarantee charge amount of $89,040*2 = $178,080 and all of them would not be deductible.  ATO can issue this under the Part 7 penalty – Superannuation Guarantee (Administration) Act 1992 (SGAA)

Prevention is Better than Cure.

To avoid superannuation guarantee penalties, it is advisable

  1. To prioritize timely payment of employer super obligations.
  2. Consider making monthly payments to reduce the impact if a payment is missed.
  3. Employers who discover non-compliance should take immediate steps to rectify the situation by lodging SGC documents within one month of the payment due date.
  4. Additionally, considering Endurego Tax can help protect your business from unforeseen accounting fees, as demonstrated in the case.
  5. If you don’t have audit insurance, please consider one, as it can be used to pay for the fee you have to pay to EndureGo Tax to solve the issues.

Remember, a little vigilance goes a long way in saving you from hefty penalties!

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