Author: Harry Hoang CPA
ATO’s increased focus on unpaid superannuation contributions
There are often myths and misunderstanding surrounding the Super Guarantee (SG) Obligations within our SME and Not-For-Profit communities. Not-for-profit volunteer directors would often expose themselves to a large extent of liability risks if their management do not comply with the superannuation law.
Part 7 Penalty dictates that directors will be personally liable for an amount equal to any unpaid superannuation guarantee contributions. This article will explain the implications of Part 7 Penalty on unpaid super and the consequences of failing to meet your SG obligations as directors.
A few months ago, one of my clients expressed a concern regarding the SG. Being self-employed with only an employee made my client unaware of the SG obligations. I offered my professional advice. However, business owners should not assume that your SG obligations are always administered by accountants, unless your accountants are given permission to look after our payroll.
If you manage your company payroll, it is your responsibility to fulfil the SG obligations. Simple fact yet often overlooked by busy directors and business owners!
The importance of superannuation never receives enough attention from SMEs. I strongly believe that it is as critical as paying staff salaries. The ATO’s increased focus on unpaid superannuation contributions is a wake-up call for businesses to change.
Consequences of failing to meet your super obligations
Let’s say you missed two quarters of your super payments, which was equivalent to $10,000. The unpaid super amount now becomes non-tax deductible regardless of its super expense coding in your books. The business has lost a tax deduction of $2,750 (27.5 percent) for FY 20/21. There are interest rates which are to be applied on your unpaid super, according to the ATO website. Another 7 percent interest cost will be incurred on your expense, adding on top of the 27.5 percent tax loss.
There will also be an admin fee of $20 per employee per quarter. If you have 10 employees, 2 quarters of unpaid super will cost another $400. That is 4 percent to be incurred.
Last but not least, due to the implementation of Single Touch Payroll, the ATO will now be more aware than ever of when a business is failing to meet its superannuation obligations. Part 7 Penalty which could go as far as 200 percent on the unpaid amount. It would become another non-deductible $20,000 to penalise the misconduct. The initial $10,000 unpaid super now turns to $33,850 which is 240 percent more than what you should have paid in the first place.
Despite the ATO’s enhanced capacity to monitor late or unpaid superannuation, it remains important to keep an eye on your own contributions. If you have unpaid superannuation contributions, you should consider seeking professional advice.
Given the ATO’s crackdown on businesses that don’t pay superannuation, it is now more important than ever to obtain professional advice on the available strategies and options you have.