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Part 7 Penalty: Directors Are Personally Liable When Facing Super Guarantee Stuff-Ups (Part 1)

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.


Changes on Xero Payroll Platform to implement the latest tax tables

The Budget will bring forward income tax cuts scheduled for 2022 as announced during the 2020 Federal Budget. It means that more than 11 million taxpayers are eligible for tax cuts backdated to 1 July 2020. 

Tailored Accounts Xero Payroll Specialist Fuzuki Nishimura closely observed the latest change of Xero payroll platform in reflecting the new tax tables for PAYG withholding. Xero has now released the updated PAYG tax tables so that your taxes will be calculated on the updated tables for all future pay runs. 

Fuzuki’s tips to all SME clients to ensure an error-free pay run under the new tax cuts: 

  • If you have an existing pay run in the Xero pay run draft, please reset this to ensure the update pulls through. 
  • You do not have to process the manual adjustments as Xero has already uploaded the tables as of the time of this article. 
  • Xero also does not need to load the tax table manually. All figures will be automatically updated. 

Benefits to your employees:

  • The income tax threshold for 19 per cent will increase from $37,000 to $45,000, and lifting the 32.5 per cent threshold from $90,000 to $120,000, according to the ATO.

Tax cuts on a different level of earnings are as below:

  • $40,000 earnings - 21% tax reduction
  • $60,000 earnings - 17% tax reduction
  • $80,000 earnings - 11% tax reduction
  • $160,000 earnings - 5% tax reduction

Reconciliation of Your Payment Summaries

The six important steps of payment summary reconciliation that employers often overlook. 

Payment summaries generation is a simple task, however the back end reconciliation does take half to a day of work. Here are list of 6 STEPS that our staff have to go through to ensure that your payment summaries are faultless!

1. Reconcile all staff payslips in the past 12 months with BASs submitted to ATO during the year. Incorrect payment summaries is the biggest trigger to an ATO tax audit...we understand how important it is to ensure our data is perfectly matched with ATO data;

2. Reconcile all staff payslips information: Gross Salary, PAYG withholding, FBT, Super payable, Salary sacrifice, Termination pays. A full reconciliation between payroll report vs General Ledgers are conducted for the full year to ensure your staff pays are agree with what coded into your accounting software for the last 12 months; 

3. Once ATO = Pay summaries = General Ledger (debit/credit), our staff will print payment summaries and re-check them with employee payroll setup to ensure their pays are in line with their contract/award;

4. Payment summaries to be email to business owner/HR manager/CEO to check before we email to your staff;

5. Payment summaries to be emailed to staff before 14th July;

6. After 1 week from sending staff payment summaries, if we don't need to do any amendment, we will send Annual Payment Summaries to ATO before the DUE DATE 14th August.




ATO Announcement: PAYG Tax Tables Changes by 1 October 2016

Dear customers,

Please be informed that PAYG Tax Tables will be updated to reflect all the changes by Saturday, 1 October 2016. Details of the changes could be accessed HERE

Image result for 1 october 2016

We encourage you to stay updated from the changes. XERO system will be updated accordingly as per the PAYG tax change. Should you have questions regarding the change, please contact us at  02 6169 5196. Our accountants will assist you with the information. 

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