Despite not being able to estimate the true amount of superannuation guarantee non-compliance, the Government is proposing a number of reforms to protect employees and strength compliance. They say it is mostly small businesses who are non-compliant, and this is often caused by cash-flow issues. We have summarised their recommendations.
On 31 March 2017, the Superannuation Guarantee Cross-Agency Working Group provided its report on Superannuation Guarantee Non-Compliance to the Minister for Revenue and Financial Services. This Working Group, established in December 2016– comprised officials from the Australian Taxation Office (Chair), the Treasury, the Department of Employment, the Australian Securities & Investments Commission and the Australian Prudential Regulation Authority.
There are currently no robust estimates of superannuation guarantee non-compliance.
In December 2016, Industry Super Australia (ISA) estimated non-compliance in 2013-14 to be $2.8 billion (affecting an estimated 2.15 million employees). In March 2017 this estimate increased to $5.6 billion (affecting an estimated 3 million employees).
The Working Group believes this estimate should be considered in the context of the $89.6 billion in total employer contributions made in 2015-16. From the analysis of ISA’s methodology, the Working Group considers that the $5.6 billion estimate is likely to substantially overstate the actual size of the superannuation guarantee gap. The data is inconsistent with experiences and observations from the ATO’s
A review of ATO case data indicates that small businesses account for around 70 per cent of reported superannuation guarantee non-compliance. Cash flow problems are often the major reason small business employers provide as to why they did not pay their employees’ superannuation guarantee contributions.
The Working Group recognises that while there is, overall, a high level of voluntary compliance by the majority of employers there is scope to improve compliance to better safeguard employee entitlements.
The Working Group has identified two key barriers to maintaining or improving superannuation guarantee compliance.
The first barrier is that the ATO does not currently have any visibility over an employer’s superannuation guarantee obligations to their employees. The second barrier is that the ATO only receives information on superannuation guarantee payments received by superannuation funds on an annual basis so there can be a lag of up to 14 months in the reporting of contributions that employers have paid. This delay further reduces the effectiveness of the ATO’s compliance work.
The Working Group proposed changes that would improve substantially the ATO’s capacity to monitor superannuation guarantee compliance:
- All employers should report superannuation guarantee obligation information to the ATO in a more timely manner. One way this will be achieved is to leverage the Government’s introduction of Single Touch Payroll legislation. Single Touch Payroll will commence for businesses with 20 or more employees from 1 July 2018. The Working Group considers that Single Touch Payroll should be extended to businesses with 19 or fewer employees as soon as practicable. Subject to more detailed design and consultation, it is believed that this change may be able to be implemented from 1 July 2018.
- The regime should be more flexible so that penalties can be tailored to reflect different levels of employer behaviour and culpability. The current penalty regime within which the ATO operates is not consistent with the settings of other areas of taxation administration. The superannuation guarantee charge regime operates largely on a one-size-fits-all basis and does not distinguish between deliberate or repeated non-compliance and inadvertent mistakes.
- Employers display to avoid superannuation guarantee obligations are closely related to characteristics that are seen in phoenix activity – the Phoenix Taskforce, which may recommend widening the manner in which the ATO is able to use Security Bonds and more readily securing outstanding superannuation guarantee charge debts through Director Penalty Notices.
- The Government should clarify the law on how salary sacrifice agreements affect an employer’s superannuation guarantee obligations. In particular to, firstly, ensure that employers cannot use an amount an employee salary sacrifices to superannuation to satisfy the employer’s superannuation guarantee obligation; and secondly, to ensure that the ordinary time earnings base used to calculate an employer’s superannuation guarantee obligation includes those salary or wages sacrificed to superannuation. This will ensure that employees receive the full benefit of voluntary contributions.
- At present, superannuation guarantee is required to be paid by employers within 28 days of the end of each quarter. The Working Group considers that improvements to data visibility are the main priority after which payment frequency could be reviewed.
- There is merit in departments working more closely to promote conformance with, and performance of, the superannuation guarantee system drawing from the respective roles and expertise of each agency. So some information sharing arrangements will be changed.