This is not a new topic but unfortunately many business owners do not seem to be aware of the serious implications regarding late payments of super.
The rules are tough… and the penalties are way out of proportion.
We had a call from a potential client who was late with a $5,000 super payment around a decade ago. He had no idea. The ATO found it thanks to a disgruntled ex-employee and the penalties and interest were over $100,000. There is no tax deduction for these amounts.
Super payments cannot be made later than the 28th day of the following month after each quarter.
If you fail to pay an employee’s super on time, you must lodge the superannuation guarantee charge (SGC) statement and pay the SGC to the ATO. The money goes to the ATO not to the employee’s super fund directly.
You only have one month to do this.
Q: What is the pain?
A: There are plenty of parts that hurt the hip pocket:
- Interest charges (10% p.a.)
- Administration charges ($20 per employee)
- Administrative paperwork (accounting fees?)
- Loss of tax deductibility of the late superannuation expense
Yes, when super payments are made late, they are NOT tax deductible.
- If the SGC statement is not lodged on time, there are significant penalties(up to 200% of the SGC amount).
- If the SGC statement is not lodged at all, the interest charges (10% p.a.) continue to accrue until the statement is finally lodged.
- This could continue to accrue for years. The ATO can review the business’ compliance backwards … indefinitely.
- There is next to no flexibilityin how this is administered by the ATO. A “mistake”, “error” or oversight is not going to help explain or mitigate penalties.
- This even includes superannuation relating to the owners and directors.
And, Yes Directors are personally liable for any unpaid SGC.
Q: Is AlpMcNamara checking this for all of their clients’ businesses?
A: No, we are unable to check that all expenses and bills are paid on time in clients’ businesses. We do expect that clients have in place policies and procedures for paying amounts due (for the ATO or any other creditor) on time.
Q: Do the ATO really check on this?
A: YES, we are seeing more and more follow up regarding unpaid and late super payments. The ATO do follow up 100% of enquiries from employees about potential super underpayments.
Q: What should our business do?
A: To avoid late super payments, we recommend making super payments as part of the regular payroll process. Super should never be viewed as a finance option for the business.
For more information, please refer to the following link:
https://www.ato.gov.au/Business/Super-for-employers/Missed-and-late-super-guarantee-payments/
If there is any aspect you feel you do not understand, please contact our office as a matter of urgency to discuss.
Maggie Kwan and the Tax Team at Alp McNamara.