Small businesses struggling with tight cash flows have been warned not to fall behind on employee superannuation payments amid continued scrutiny from the Tax Office.
SMALL businesses struggling with tight cash flows have been warned not to fall behind on employee superannuation payments, amid continued scrutiny from the Tax Office and proposed laws to crack down on errant employers.
Accountants servicing the small-to-medium business sector have warned that despite difficult market conditions - especially for businesses in retail and manufacturing - employers should not resort to deferring superannuation payments, due to the ''enormous'' penalties and looming new laws.
The Tax Office expects to handle 12,500 complaints this year about ''micro employers'' - businesses turning over less than $2 million a year - failing to pay employees' superannuation. That issue is listed among its compliance focus areas.
Thousands more small-to-medium enterprises will be scrutinised to ensure that they are meeting their superannuation and tax obligations.
Businesses that fail to pay employees' super by 28 days after the end of a quarter must pay interest on the missed payments and an administration fee. They are also unable to claim the super payments as a tax deduction - a potentially ''massive'' penalty for businesses, said Brad Twentyman, director of superannuation at Pitcher Partners.
''The natural reaction is, 'I can't pay everything' ? and some people do look at super as one thing that can be put off until the day they have a bit more cash,'' Mr Twentyman said. ''We drill into our clients that it's probably the last thing they should let slip because the loss of deductibility is such a severe penalty.''
The Tax Office receives about 18,000 complaints a year about unpaid super, it told The Age, about 70 per cent of which relate to micro-enterprises. Last year, the Tax Office pursued 10,000 cases involving small employers failing to pay superannuation, reclaiming $152 million as a result.
''The ATO will approach this with the view that this is not the employer's money, it is the employees' money,'' said Paul Banister, tax partner at Grant Thornton.
The price of non-compliance could soon be greater still, with the government confirming it will push ahead with proposed laws making directors personally liable for a company's unpaid super.
The legislation is aimed at tackling phoenix companies - failed businesses with debts to creditors and employees that are resurrected by the same operators under a slightly different guise.
However, when the proposed laws were unveiled late last year, concerns were raised that they might unfairly penalise directors who had inadvertently missed a payment.
Assistant Treasurer Mark Arbib said the government was refining the legislation. ''We will be undertaking further public consultation shortly before the legislation is reintroduced into Parliament,'' he said.
It comes as the high dollar and depressed consumer confidence take their toll on Australian businesses, with 2589 companies entering administration in the three months to December, up 8 per cent on the year before.
It was ''common'' for companies to have fallen behind on super and other obligations by the time they ended up in administration, said Gess Rambaldi, partner-in-charge of insolvency at Pitcher Partners. Mr Rambaldi said the tight business conditions increased the risk that more businesses would fall behind.
Frequently Asked Questions about this Article…
Why are small businesses being warned not to skip employee superannuation payments?
Small businesses are being warned because the Tax Office is stepping up scrutiny of unpaid superannuation and penalties can be severe. The article says employers who miss super payments face interest, an administration fee and lose the ability to claim the super as a tax deduction — a potentially “massive” penalty. Accountants advise that deferring super is one of the last things businesses should do despite tight cash flows.
What is a 'micro employer' and how many complaints does the ATO expect about unpaid super?
A 'micro employer' is a business turning over less than $2 million a year. The Tax Office expects to handle about 12,500 complaints this year specifically about micro employers failing to pay employees' superannuation, and the ATO receives roughly 18,000 complaints about unpaid super each year, about 70% of which relate to micro-enterprises.
When is the superannuation quarterly deadline and what happens if a business misses it?
Businesses must pay employees' superannuation by 28 days after the end of a quarter. If they miss that deadline they must pay interest on the missed payments, an administration fee, and they cannot claim those super payments as a tax deduction.
Could company directors become personally liable for unpaid superannuation?
Yes — the government confirmed it will push ahead with proposed laws that could make directors personally liable for a company's unpaid super. The legislation is aimed at tackling phoenix companies, though concerns were raised that it might unfairly penalise directors who inadvertently miss a payment. The government says it is refining the laws and will undertake further public consultation.
How actively does the ATO pursue unpaid superannuation cases?
The ATO treats unpaid super as a compliance focus area. According to the article, last year the Tax Office pursued 10,000 cases involving small employers and reclaimed $152 million. It is also increasing scrutiny of thousands more small-to-medium enterprises to ensure they meet superannuation and tax obligations.
Which industries are most at risk of falling behind on superannuation payments?
Accountants servicing small-to-medium businesses said difficult market conditions are most acute in retail and manufacturing. Those tight cash-flow conditions increase the risk that businesses in those sectors will fall behind on super and other obligations.
What do accountants recommend small business owners do about paying super during tight cash-flow periods?
Accountants in the article warned employers not to defer super payments even when cash is tight. Brad Twentyman (director of superannuation at Pitcher Partners) said many owners feel they can put super off until they have more cash, but they are advised not to because losing the tax deductibility is a severe penalty.
What are phoenix companies and why is legislation targeting them related to unpaid super?
Phoenix companies are failed businesses that are resurrected by the same operators under a slightly different guise, leaving debts to creditors and employees. The proposed legislation aims to tackle phoenix activity by holding directors personally accountable for unpaid super, to prevent operators from avoiding superannuation and other debts when a business is restructured or wound up.
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