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Tax, technical quirks put clients at ‘crippling’ risk of penalty

Draft legislation, which could see employers jailed for non-compliance with the super guarantee, doesn’t wholly consider the complexities for those clients who are doing the right thing by their employees.

Tax&Compliance Katarina Taurian 01 February 2018
— 2 minute read

The federal government released draft legislation which proposes criminal penalties for employers and directors who don’t comply with a direction to pay outstanding superannuation guarantee. If passed, the new laws will be effective from 1 July this year.

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Mid-tier firm BDO believes those who are doing the right thing — which is the majority of employers — could be unfairly caught out by the new laws.

“All recent moves in this area have been to increase the size of the stick, without providing any carrots for those who do, or try to do, the right thing,” said tax partner Mark Molesworth.

“In particular, medium-sized and growing employers can struggle with the technical requirements of the superannuation guarantee landscape, particularly the need to pay superannuation on a different cycle to other tax obligations and to pay superannuation to the employee’s choice of superannuation fund.

“This can lead to an employer with 30 or 40 employees having to make payments to dozens of different superannuation funds.

“To add insult to injury, if the employee passes on fund information that is not exactly correct and the payment is rejected, or if an intermediary fails to pass on the money to the superannuation fund on time, it is the employer who is penalised even if they are not at fault.”

In principal, the mid-tier firm otherwise supports moves to move in on employers who aren’t meeting their SG obligations. A report from the tax office released in August last year showed the net superannuation gap — which is the difference between the value of SG gaps required to be paid by law minus what is actually paid — is about $2.85 billion. You can read more about the ensuring compliance plans from the ATO via our sister publication, SMSF Adviser.

Mr Molesworth suggested a range of fixes which he believes are more workable for employers, including:

· Employers have the option to pay superannuation contributions to the ATO along with their usual pay-as-you-go withholding from wages every week, month or quarter. The data about which employees the payment relates to is transmitted under the single touch payroll system, which will be compulsory for all employers from 1 July 2019 in any event.

· Payment to the ATO is deemed to meet the requirement to make a superannuation contribution on behalf of an employee.

· The employee nominates their preferred superannuation fund to the ATO through their MyGov account. The employee can change their nominated fund via this same channel. This takes the administration hassle of choice of fund away from the employer, encourages Australian workers to obtain a MyGov account and interact with the government online, and it will mean that the ATO can weed out bogus superannuation funds before they receive any money.

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Tax, technical quirks put clients at ‘crippling’ risk of penalty
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Tax&Compliance