The Economics References Committee is to report by 22 March 2017 on various issues concerning the non-payment of superannuation by employers for their employees.
The superannuation guarantee charge (SGC) is levied on employers who fail to make payment of superannuation contributions to their employees’ designated funds. A Melbourne University report, discussed below, reveals that in 2014, approximately 846,000 employers were required to make SG payments on behalf of about 11.7m employees to about 548,000 superannuation funds, totaling around $77b.
But SG non-compliance among employers is high – estimated by the ATO at somewhere between 11% and 20%.
The ATO raised $844m in SG Charges and collected $395m in 2013-14, representing around half the amount it raised in liabilities. However, the ANAO’s June 2015 report – Promoting Compliance with Superannuation Guarantee Obligations – revealed that as at 30 June 2014, SG debt was over $1b, and since 2011–12 the debt has been growing at a rate of 12% annually.
The system is flawed, like many or all employee tax arrangements that rely for compliance on individual employers.
Some issues under review
Some of the issues under review by the Senate Committee are:
- the accuracy and adequacy of information and data collected by the ATO, APRA and ASIC on non-payment of SG;
- the role and effectiveness of the ATO monitoring, investigations, and recovery of unpaid SG, including technology and data collection to predict and prevent non-payment;
- resources and coordination between government agencies and other stakeholders to prevent non-payment,
- legislation and penalties to ensure timely and fair payment of SG,
- remedies to recoup SG in the event of company insolvency and collapse, including “last resort employee entitlement schemes”,
- measures to improve compliance with the payment of SG; and
- the obligations of accountants, auditors, creditors and financial institutions who become aware of SG non-payment.
Submissions to the Committee will no doubt make the point that many of these issues are the subject of earlier recommendations or of existing inquiries. Many existing recommendations have not yet been acted upon although that is the case with many government inquiries at the moment.
These comments may assist, under these headings.
Information and data and co-ordination of efforts
The Committee will be aware of the University of Melbourne’s two reports on phoenix activity, with a third and final report due by the end of this year.
The second report – Quantifying Phoenix Activity: Incidence, Cost, Enforcement, 2015 – is critical of the ATO and ASIC in gathering and maintaining data on the incidence of phoenix misconduct, of which non-payment of SGC is often a significant part.
Despite the claims of both ATO and ASIC as to the tax and other losses associated with phoenix misconduct, neither has proper processes in place to consistently gather data, with disparities being revealed between these two and other agencies. The second report encourages the government to put in place better data-gathering mechanisms.
Nevertheless the University report does explain what data is available about the incidence, cost and enforcement of laws dealing with illegal phoenix activity. This includes data gathered from the ATO, ASIC and others which is not otherwise available to the public.
The Committee will need to examine and update the information in this University report, and examine its forthcoming and final report.
Laws and penalties
Laws allowing recovery of unpaid superannuation are necessary, including the imposition of penalties. But like many tax ‘recovery’ laws, the system is flawed to start with, in that it leaves it up to individual employers to remit tax and superannuation for the employees.
Such taxes should be recouped at the source, deducted from the employer’s bank account, which should soon be possible under the single touch payroll (STP) process. The Budget Savings (Omnibus) Act 2016 creates STP for substantial employers to automatically provide payroll and superannuation information to the ATO at the time it is created. Entities that report under STP will not have to comply with a number of existing reporting obligations under the taxation laws.
The next phase is anticipated to allow superannuation to be automatically deducted from the employer’s account.
That law was endorsed by the Economics Legislation Committee on 14 September 2016.
The wider issue is that unpaid SG is part of a large issue of unremitted withholding taxes, addressed by various Senate committee recommendations, for example into the Australian construction industry (December 2015), and ANAO reports. A fundamental reform would be to introduce a director identity number – DIN – the subject of several recommendations, but as yet not acted upon or even responded to. New Zealand has the introduction of a DIN in its sights.
Accountants and others aware of non-payment
With the expected commencement of the change to the International Code of Ethics for Professional Accountants in July 2017, it is anticipated that there will be an obligation on any accountant to report non–payment of SG if they become aware of it. That obligation will be to report non-compliance with laws and regulations (NOCLAR).
Many other sources of reporting exist as well, including from employees themselves.
Any comment welcome.