Ok, it’s easily done, you pushed the button to execute the super payment, but there was an IT issue, or some detail was incorrect, and it bounced.
Did you know the tax law states that you will lose the tax deduction for the super payment if it is not paid by the 28th in the month after the quarter end? Harsh result, and some may simply ignore it, however with ATO reviews becoming increasingly frequent it could be a costly mistake to sweep the problem under the carpet.
There are both Superannuation Guarantee rules and tax deductibility rules that need to be considered. It is important to note that super payments are not generally considered paid until it is credited to the employee’s super account under both rules, although use of an approved clearing house can satisfy the Superannuation Guarantee rules when payment is received by the clearing house. Many, however, do not realise that this concession for certain clearing houses does not extend to the tax deductibility rules.
This article discusses what you need to look at if you have made a short-payment and we also summarise the rules that you need to keep in mind.
What should you look at:
- Check your dates - ensure you have the right quarter (i.e. months ending September, December, March and June) and that the 28th of the following month does not fall on the weekend. The Tax Office provides and extension to the Monday if the due date is on the weekend.
- Check your Super cut-off dates - did you make a payment in the relevant quarter that related to a prior quarter that happened to be in excess of the 9.5% requirement? If so, that payment may be considered in respect of the relevant quarter.
- Check your super payment rates - were any of your employees receiving over 9.5% in the relevant quarter? If so, a late payment may not fall foul of the rules if enough excess exists in prior contributions.
- Check your wage cut-off dates - Super is payable on wages paid to employees, so if your system is calculating super payable on wages merely payable, for example, you may not have a liability in the relevant quarter for those wages.
- Do you have employees earning below the minimum $450 a month necessary for superannuation to be payable? Such wages would not trigger contravention of either the Superannuation Guarantee rules or the tax deductibility rules.
- Do you have employees that earned a salary that was not "Ordinary Times Earnings"? This refers to amounts for work performed outside an employee's ordinary hours of work, for example overtime and is not subject to the Superannuation Guarantee rules and tax deductibility rules as they can simple be treated as a payment in the later quarter.
- Do you have employees that earn a salary above the Maximum Contribution Base amount? This amount is $55,270 per quarter for the year to 30 June 2020. Any contribution on wages above this amount could be considered a payment in respect of the next quarter.
- Was the payment in respect of a former employee? This may allow up to four months to make the contribution and still claim a tax deduction.
The most important quarter traditionally has been the June quarter, with the super payment due on the 28th July. This quarter is the one that is most obvious to an ATO auditor, so it is critical to get this right. It is however too often the only quarter that accountants look at when determining tax adjustments, so amounts paid during the year are often the real silent killers.
If the above measures do not apply to a sufficient extent, then the business is technically in breach if a late payment is made, even by a day. Also, the Commissioner has in theory no ability to apply discretion. The best way of avoiding the problem is to have good systems in place and pay a little early.
In terms of consequences under the rules, we have two things to worry about:
1 – Super guarantee rules
By making a late payment and not completing the super guarantee form, there is a breach of the Superannuation Guarantee (Administration) Act 1992. However, assuming the payment was made within two months, you can make an election to apply the payment against any superannuation shortfall. You should not be in a situation where the super needs to be paid effectively twice – once for the super actually paid and twice to pay Super Guarantee to the ATO (as in DFC of T v Rathner, but that related to a liquidation, in 2004, and is very rare). This election can be made anytime within four years. Most audits do not go back that far, but they could. In this rare event that it is beyond four years, you need to ensure you lodge a Superannuation Guarantee Statement very quickly if subject to review (i.e. before they issue an assessment to you). The ATO is usually fairly reasonable on such matters, their focus is on ensuring that the employees are paid their appropriate superannuation.
What can arise is a nominal interest charge, which is 10% p.a. But it would only be for short period if it was only paid a day or so late. Then there is an administrative charge, which is $20 per employee. Both these charges apply if you lodge an Superannuation Guarantee Statement now or not. If it is part of a scheme there can be other repercussions, but we are not referring to such incidences in this article.
2 – Tax deductibility
ATO adjustment to deductions in respect of late payment within the single year are admittedly rare, but they are increasingly reviewing each quarter. Superannuation audits and tax audits are also usually distinct things, and the super audit does not always lead to a tax one. In the rare event that there is an adjustment to deductions, the normal penalties may arise if an incorrect deduction is made (“failure to take reasonable care” = 25% of the tax shortfall, “recklessness” = 50% and “intentional disregard” is 75%, however in rare occasions aggravating or mitigating circumstances can vary these). We would ordinarily expect up to 25% of the tax payable in circumstances of inadvertent mistake (i.e. 25% multiplied by the tax which would be 27.5% or 30% of the super contribution paid late). Any penalties may be objected to if there are reasonable grounds.
So the take-away is, ensure you are using an approved clearing house and give yourself some breathing room when making a payment. If you have made a mistake, consider the list above and see if the shortfall could be reduced or even eliminated.
If you have any questions regarding the above, contact Director of Business Services and Taxation, Siobhan Sellick