Employers may face a 200% penalty rate + interest for late or unfulfilled superannuation contributions. Although this has been the case for years, the ATO previously had adopted a lenient and forgiving approach. In many cases, where the employer had fulfilled the required contribution past the due date, they walked away with a small 5% or 10% penalty. Furthermore, between 24 May 2018 and 7 September 2020, the ATO provided employers with an Amnesty period, If they voluntary disclosed liabilities for quarters from 1 July 1992 to 31 March 2018 , they would be exempt from the 200% Super Guarantee Charge (SGC).
As of 25 November 2021, the ATO is guided by the new Practice Statement Law Administration 2021/3 (PS LA 2021/3), which tightened the rules and made it more likely for employers to incur a harsh penalty unless they lodge the Superannuation Guarantee Statement (SGS) in time.
The penalty system:
As an employer, if you fail to make your required superannuation contributions in full and you do not lodge an SG statement within 28 days after the relevant quarter, you will be liable to a penalty made up of:
- Super Guarantee Charge – 200% of the original amount (on top of the original amount)
- Nominal annual interest which you will accrue until the SGS has been lodged, rather than until you have completed the payments
- Administration fee of $20 per employee per quarter
The ATO can make penalty remissions so that the SGC is reduced to less than 200%. However, their discretion has been limited through the 4 Step Penalty Remission Process, which caps the available remissions for certain circumstances.
The 4 Step Penalty Remission Process
Step 1: The ATO considers remission based on the employer’s attempt to comply with obligations through making late payments, according to the table below. This guideline did not exist pre-2021.
|Late Payments Compliance||Remission||Liable SGC|
|Late payment in response to ATO compliance action such as audit||10%||180%|
|Late payment made after initial ATO contact but before compliance action||15%||170%|
|Late payment 9 months after due date before ATO contact||30%||140%|
|Late payment 6-9 months after due date before ATO contact||33%||134%|
|Late payment 3-6 months after due date before ATO contact||36%||128%|
|Late payment less than 3 months after due date before ATO contact||40%||120%|
Step 2: The ATO considers remission based on the employer’s attempt to comply with obligations through lodgement SGS. The table below compares the similar 2021 and 2020 remission limits in this aspect.
|SGS compliance||2021 Remission||2020 Remission|
|Employer has demonstrated repeat disengagement to previous SGC assessments or is engaging in a phoenix arrangement*||0%||0%|
|Employer failed to lodge SGS or provide relevant information in response to ATO compliance action||25%||25%|
|Employer gives information after lodgement due date in response to ATO compliance action||40%||40%|
|Employer lodges SGS in response to ATO compliance action||60%||50%|
|Employer lodges SGS prior to SGC assessment after due date and initial ATO contact before ATO compliance action||80%||80%|
|Employer lodges SGS after due date before ATO contact||90%||90%|
* A phoenix arrangement is where a company is liquidated to avoid paying its debts and a new company is started to continue the same business activities.
Note that the remission percentages are added to those from step 1. For example, if, according to step 1, an employer is entitled to a 10% remission for making a late payment in response to ATO action, and they also lodged a SGS in response to ATO action, they would be entitled to an additional 40% remission. That means they would be entitled to a 50% remission and only liable for 100% (50% x 200%) SGC. The exact process occurs through step 3 and 4.
Step 3: The ATO considers remission based on the employer’s compliance history. The ATO considers the employer’s history in the three years leading up to the disclosure or ATO compliance action.
|Compliance History||2021 Remission||2020 Remission|
Note the greater emphasis on compliance history in 2021. If an employer is found to have extremely poor compliance and they are not entitled to remissions in any other steps, they will be liable for a 260% (200% x 130%) SGC.
Examples of poor compliance include:
- Lodging SGS late
- Not adequately addressing outstanding SGC debt
- Previously issued with SGC default assessment
Examples of extremely poor compliance include:
- Repeatedly failed to meet obligations after multiple ATO compliance actions
- Repeatedly attempted to obstruct or hinder compliance action
Step 4: The ATO considers mitigating factors. The ATO will not consider factors already considered in earlier steps in this step. While the 2020 PS LA did not pose percentage limits and provided broad discretion, the new 2021/3 PS LA categorises mitigating factors under 5%, 10%, 20% and 50%.
Issue is addressed
Payment arrangement is entered
|Non-compliance occurred in the first year of operation and principals had no previous business experience||10%|
|Ill health of employer or key employee|
Significant proportion of superannuation is paid on time
Miscalculation due to complex legal interpretative issue
Third party compliance issue
|Malfunction of key ATO system|
Natural disaster significantly impacting ability to comply with obligations
Misclassifying workers despite reasonable steps to classify them correctly
What can employers do?
Fill out the form as accurately as possible as soon as possible. This will ensure you will no longer accrue unnecessary interest, and it will also increase your chances of reducing SGC.
If you are unhappy with the assessment outcome, you can appeal to the tribunal, which does not necessarily have to follow the practice statement.
If you have any questions, please contact us.