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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Unpaid super, again; single touch payroll; penalties, and more

The Senate Economics References Committee is conducting another inquiry into the problem of the non-payment of superannuation by employers of their employees’ superannuation. 

To state the problem is to prompt a ready answer, that it should not be left up to the employer to pay the super, rather the super should be extracted at source by the ATO from employers’ accounts.

Reliance on employers in this way is very “last century” but it persists through an accounting and business conservatism in reliance upon cash flow, from whatever source and for however long, in running a business, late payments often given as reason. 

Single touch payroll (STP) was introduced through the Budget Savings (Omnibus) Act 2016.  However, it represents a backdown by the government, for the moment, in requiring only reporting  of super and not payment.

The value of the additional step of extracting payment, in the context of dealing with phoenix company misconduct, is explained in the recent Melbourne-Monash Academics Report of February 2017.  In the context of phoenix misconduct, it says [2.7] that:

“The original ‘single touch payroll’ proposal – reporting and paying PAYG(W) taxes and superannuation contributions at the same time the employee is paid – has the capacity to reduce much of the incentive to engage in harmful phoenix activity. …

However, the government has amended the STP proposal so that now it will only cover the reporting of tax and superannuation obligations. This alteration was in response to concerns from business about the ‘cash flow’ implications of having to pay the taxes at an earlier time than is presently the case. In other words, while wages are generally paid fortnightly, PAYG(W) and superannuation are usually only remitted monthly or quarterly depending on the size of the business and the terms of the super fund trust deed. The objection raised shows the extent to which businesses rely on employee-related sums – ‘their money’ until it is legally payable – to finance their businesses, and also shows the hesitation of the government to interfere with this practice” [footnote references omitted].

The lead academic in that report, Professor Helen Anderson, has been relentless in pushing for some basic reforms which, left unattended, only serve to ease the way for phoenix operators. 

She has made a submission to the Senate Committee which raises STP and many other aspects of her and her colleagues’ research, saying that STP “will address [non-payment and phoenixing], but only if it involves both payment and reporting”.

The Committee is due to report by 22 March 2017.

As with much of legal and tax regulation, it is better to facilitate payment up-front that rely on taxpayer compliance and then seeking penalties and recovery if the taxpayer defaults. This is an important theme in the Phoenix Report and it will also be covered in the Senate white collar penalties report also to be released soon, on 23 March 2017. 

Professor Anderson has, it seems to me, been a rather lone voice in ‘prevention rather than cure’ in this area, the latter being the more populist and easy approach – increased enforcement, penalties, and jail – even if less effective. Business and its taxes is an area replete with resistant interests and practices.

Single Touch Payroll (STP) Engagement Forums

I have been invited to join and attend meetings of this Forum.  Its aim is to provide information and collect feedback to better support the transition to STP.

Pending Senate Committee reports may add impetus to move STP on to the next stage, of actual payment.

Missed opportunities

In one of her articles, written in 2012, Professor Anderson refers to a “missed opportunity” in relation to law reform addressing phoenix misconduct.  There have no doubt been many others.  The billions lost through phoenix misconduct in the meantime, plus through super non-payment, is something for which the government must take prime responsibility.

Comments welcome.

 

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