July 16, 2019
Employers now face unprecedented consequences for failing to pay superannuation to employees. The Treasury Laws Amendment (2018 Measures No 4) Act 2019 (Act) came into effect on 1 April 2019. The Act serves to protect employees by imposing serious consequences for employers who do not comply with their superannuation guarantee (SG) obligations. Among the changes includes the ability for the Commissioner of Taxation to pursue criminal penalties, including 12 months imprisonment for serious contraventions.
Why was the superannuation regime tightened?
In order to protect employees and deter breaches by employers, the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 was introduced. Some of the comments during deliberation of the Bill demonstrate the Government’s commitment to protect employees from non-complying employers.
One such example is the Shadow Assistant Treasurer Andrew Leigh who compared unpaid superannuation to wage theft in his Second Reading of the Bill. He continued by suggesting that “[i]f you're not paying superannuation, that is as bad as not putting money into the worker's pay packet”.
Similarly, Senator Peter Whish-Wilson stated “…unpaid superannuation is not working capital for businesses. It is employee's money that should be disbursed as regularly and consistently as employees turn up for work”.
Summary of the legislation.
With this mindset, the Act attained Royal Assent on 1 March 2019. The highlights of the Act are as follows:
- debt collection mechanisms have strengthened around director penalty notices (DPN) and security deposits with effect from 1 July 2018;
- the ATO can disclose information to employees regarding the non-payment of SG on their behalves, including the ATO’s efforts to recover the outstanding amounts with effect from 1 July 2018;
- the Commissioner can issue a direction to an employer to pay an outstanding SG liability or an estimate of the liability;
- single touch payroll (STP) will also extend to all employers from 1 July 2019; and
- non-compliant employers may be directed by the Commissioner of Taxation (Commissioner) to undertake an ATO approved online education course.
How does this affect employers?
Prior to the introduction of the Act, the ATO’s remedy was to recover the SG charge and interest (i.e. general interest charge) from an employer. The changes introduced by the Act extends the Commissioner’s power to be able to pursue employers for criminal penalties of up to 12 months imprisonment.
The ATO now has improved visibility over SG obligations and payments (including under STP etc), and has the mechanisms to detect and act on non-complying employers. Employers need to be aware of these changes and ensure they are compliant to avoid interest or potential jail time.
Prior to the amendments made by the Act, a director could avoid personal liability arising from a DPN if the company was placed in administration or liquidation before the penalty was “locked down” (four months and 28 days from the end of the quarter). This created a window whereby directors could potentially wait three months, just before the penalty was “locked down”, then place the company into administration or liquidation and suffer no personal liability. The Act now eliminates this three month window of opportunity and instead the SG charge liability is “locked down” when it is incurred (one month and 28 days after the end of the quarter). If a company is wound up after this date, personal liability from a DPN for SG will remain (not applicable for PAYGW).
From 1 July 2019, STP will also extend to all employers, not just those with 20 or more employees. STP works by sending tax and super information from your payroll or accounting software to the ATO as you run your payroll. STP is mandatory, so steps must be taken now to ensure you comply.
How can we help?
McInnes Wilson Lawyers can help you:
- review your SG obligations, including whether you are liable for a SG charge;
- evaluate and respond to DPNs and now other new statutory notices under the Act;
- prepare objections to the ATO regarding SG assessments and notices issued under the new law; and
- analyse and address late payments of SG amounts, including utilising the late payment offset or carry forward provisions.