Employers playing superannuation roulette

Employers have until September 7 to disclose, lodge and pay unpaid super guarantee amounts for their employees.

The superannuation amnesty which runs out on September 7 has revealed the incredible dangers tens of thousands of enterprises face in paying their superannuation quarterly.

These enterprises, mostly small or medium sized, have suddenly discovered that outside the amnesty period their quarterly superannuation payments are not tax-deductible because they arrived in the employee’s fund too late—often just 24 hours late. And there can be heavy fines.

And once the amnesty to pay unpaid super guarantee amounts for employees is over there is nothing the government or the Australian Taxation Office can do about it, because the ALP won’t extend the amnesty or support a government change to the brutal and unfair current legislation.

Many in the ALP want to attract small business votes but their failure to act to stop the likely destruction of thousands of enterprises, with consequent job losses where all employees received their full superannuation entitlement, shows the unions are too strong for the pro-small business ALP politicians.

The amnesty only protects superannuation payments prior to April 2018. Late superannuation payments since then should not have been claimed as a tax deduction and extra tax must be paid. And there will be penalties, again not tax-deductible.

The trapped enterprises, particularly those where small mistakes were made in earlier years, will simply have to go to the wall or be badly damaged. The horror of the decades-old existing legislation was really brought home to me by emails from my readers following my earlier commentary.

If I am one day late, just 24 hours, in my quarterly superannuation payment then the whole amount is not tax-deductible. Moreover, for being late I receive a fine which is a tax payment of 10 per cent simple interest each year, which is also not tax-deductible. That 10 per cent goes to the Australian Taxation Office which then credits it to the employee’s fund. Then there are penalties so mountainous that debts can be assembled for minor late payments.

Going forward, it is really important that small enterprises deduct their superannuation along with their wage payments because the quarterly banking system is not working.

It takes between one and three days for the money to move from the enterprise’s bank through the banking system to the payment agencies, which then credit the various individual employee superannuation accounts. That takes another one to three days – a total potential delay of six days.

That means that any superannuation payment after 22 days from the end of the quarter is liable to be not tax-deductible and carry non-deductible interest.

Given that superannuation is calculated on the ordinary base rate of salaries and not the allowances and penalty rates, it is simple to organise the major software systems around simultaneous wage and superannuation payments,

It’s true it will take up extra cash flow but playing end of quarter roulette has risks that far outweigh the gains in the low interest rate environment.

The legislative price of securing the six months amnesty in the Senate was to make the minimum penalty for unpaid or late superannuation 100 per cent of the amount owing if the ATO discovers the offence. It can rise to 200 per cent for a bad offence. Previously the fine meter started at nil. In addition, there is an administrative charge.

If the taxpayer volunteers the error then, outside the amnesty, the fine can be below 100 per cent but all fines, back superannuation and interest are not tax-deductible.

Enterprises that can raise the cash or make an ATO arrangement in the COVID-19 environment should take advantage of the amnesty.

Given the amnesty started in March, just when COVID-19 infection rates became much worse, government would love to extend the amnesty for another other six months, but so far the unions have stopped the ALP supporting the action and there are not enough Senate sitting days to justify long debates.

And so, the amnesty ends on September 7 when the fate of vast numbers of small enterprises and their employees becomes uncertain.

The ATO will use its new technology to discover 24-hour late payments and will act in accordance with the law, albeit a bad law. (Actual non-payment of superannuation is a different matter).

My criticisms of the ATO have been that it pursues social agendas outside the law.

In this case it is doing what I have always asked it to do—obey the law.