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Superannuation Guarantee Charge and remission of penalties

What is the Superannuation Guarantee (SG) regime?

The superannuation guarantee regime is designed to encourage employers to provide their employees with a minimum level of superannuation to support them for ready for retirement. From 1 July 2021, the minimum super guarantee percentage for employers is 10%. This percentage will continue to increase until it reaches 12%. For more details on the superannuation percentage please refer to the ATO website:

https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=22

The superannuation guarantee contributions are due by the 28th day after the end of each quarter (i.e. 28 January, 28 April, 28 July, 28 October).

Where the employer fails or is late to provide the minimum superannuation guarantee contribution, the employer is liable to pay the superannuation guarantee charge (SGC), which includes:

  • The SG shortfall calculated on ordinary time earnings
  • Nominal interest of 10% per annum; and
  • The administration fee of $20 per employee per quarter

read more on the Changes Targeting Total Superannuation Balances.

Do you understand the Part 7 penalty?

The Part 7 penalty is an additional superannuation guarantee charge imposed under Part 7 of the Superannuation Guarantee (Administration) Act 1992 when the employer is late to lodge the superannuation guarantee statement or fails to provide a statement or information during the audit.

The minimum amount of Part 7 penalty for the quarter is $20 and the maximum Part 7 penalty is 200% of SGC (i.e. double the total of SGC for the quarter).

More about the draft Practice Statement.

Background

The SG amnesty allowed the employer to disclose and pay for the SGC for the period between 1 July 1992 to 31 March 2018 without incurring the administration charge of $20 per employee per quarter or Part 7 penalty. The amnesty also allowed a deduction for the SGC paid by the employer. This SG amnesty ended on 7 September 2020.

The ATO further released PSLA 2020/4 to allow the ATO to remit Part 7 penalty post SG amnesty period. However, the ATO approach to the PSLA 2020/4 was considered harsh and inflexible as it did not consider the employer compliance history and did not remit Part 7 penalty below 100% of SGC, except for limited circumstances.

In view of the above concern, the ATO has issued a draft PSLA 2021/D1, which will be outlined below. The draft PSLA 2021/D1 will replace PSLA 2020/4 once it is finalised.

PSLA 2021/D1

In the draft Law Administration Practice Statement 2021/D1, it has outlined a four-step penalty remission process when deciding whether the Part 7 penalty able to be reduced from 200%:

  • Step 1: review on the employer’s attempt to comply with SG obligation through late payment
  • Step 2: review on the employer’s attempt to comply with SG obligation through lodgement of SG statement
  • Step 3: review on employer’s compliance history
  • Step 4: consider any other mitigating facts or circumstances that warrant further remission.

Penalty relief for employers with turnover less than $50 million

In some limited cases, the ATO allows additional remission to an employer in conjunction with a direction for education – this is known as a ‘penalty relief’ arrangement.

The penalty relief aims to educate the employer to meet their SG obligations by reducing the employer’s knowledge gaps on SG.

An employer is only eligible for a penalty relief arrangement where their turnover is less than $50 million and it:-

  • took voluntary action to comply with their obligation to lodge superannuation guarantee statements
  • do not have a history of lodging SG statements late
  • have lodged no more than four SG statements after the lodgement due date in the present case
  • have no previous SG audits where they were found to have not met their SG obligations, and
  • have not previously been provided with penalty relief.

read more about corporate tax.

The ATO has the discretion to remit the Part 7 penalty partially or in full. The remission can be completed during the original assessment stage or after the penalty which the employer may lodge an objection to the assessment.

Please note that this draft practice statement serves as an overview to the public on how the ATO will determine the remission of the Part 7 penalty. This draft practice statement is part of the ATO response to the public’s opinion on the PSLA 2020/4 were considered harsh and inflexible.

Key takeaways to keep in mind

In spite of the more lenient approach implemented by the ATO on the remission of the Part 7 penalty, we would recommend for the employers to consider the mechanisms that can be implemented to monitor and assess quarterly superannuation guarantee obligations and address any shortfall within 28 days after the end of the relevant quarter to avoid any SGCs and penalties.

For any enquiries related to this update, contact us today.

Natasha Jurista

Natasha, Managing Director of Global Mobility Tax at Andersen Australia, brings over 18 years of expertise in Australian expatriate taxation and global mobility tax. Natasha excels in global payroll, cross-border share plan tax implications, and compliance support for multinational clients.

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