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…
What should small businesses do if they’re struggling to pay employee superannuation?
The article warns small businesses not to defer superannuation payments even when cash flow is tight. Accountants quoted urge employers to prioritise paying super on time because the ATO is increasing scrutiny and penalties (interest, administration fees and loss of tax deductibility) can be severe. Seek advice from your accountant or adviser early rather than waiting.
What are the penalties for late or unpaid superannuation payments?
If businesses miss the deadline (generally 28 days after the end of a quarter), they must pay interest on the missed payments and an administration fee. They also lose the ability to claim those super payments as a tax deduction — a penalty described in the article as potentially 'massive'. The ATO is actively pursuing non-compliance.
How much enforcement activity is the ATO doing on unpaid superannuation?
The article says the ATO expects to handle about 12,500 complaints this year about 'micro employers' failing to pay super. In total the ATO receives around 18,000 complaints a year about unpaid super, about 70% of which relate to micro‑enterprises, and last year it pursued 10,000 cases reclaiming $152 million.
Who are 'micro employers' and why are they a focus for unpaid super investigations?
According to the article, 'micro employers' are businesses with turnover of less than $2 million a year. The ATO has listed failures to pay employees' super among its compliance focus areas and expects a large share of complaints to come from these smaller businesses.
Could company directors become personally liable for unpaid superannuation?
Yes — the government confirmed it will push ahead with proposed laws to make directors personally liable for a company’s unpaid superannuation. The legislation targets phoenix companies, though officials are refining the proposals and plan further public consultation to address concerns about inadvertent penalties on directors.
What are phoenix companies and why is legislation being targeted at them?
The article defines phoenix companies as failed businesses that leave debts to creditors and employees and are then resurrected by the same operators under a slightly different guise. Proposed laws aim to prevent this behaviour by making directors personally accountable for unpaid superannuation.
How have current economic conditions affected the risk of unpaid superannuation and business insolvency?
High exchange rates and weak consumer confidence have put pressure on Australian businesses. The article notes 2,589 companies entered administration in the three months to December (up 8% year on year), and it’s common for businesses to have fallen behind on super and other obligations by the time they go into administration.
What is the ATO’s stance on unpaid superannuation — is it considered employer or employee money?
The ATO approaches unpaid super as employees’ money rather than the employer’s. The article quotes a tax partner saying the ATO treats superannuation as belonging to employees and will pursue employers who fail to meet their obligations.
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