Finally, a grand finale to contesting of super

In this instance, the venue was the High Court and the contest related to whether the Superannuation Guarantee Charges Act was constitutionally valid.

Roy Morgan Research had brought a case against the commissioner of taxation that the SGC penalty regime was invalid. Both sides of politics and the multibillion-dollar superannuation industry had held their breaths, worried that the underdog could cause an upset. If the SGC had been ruled invalid and unconstitutional, the legal requirement for employers to contribute 9 per cent superannuation for all employees would have ceased.

At the heart of the SGC system is a harsh penalty regime that equally punishes employers that effectively steal from their employees, and those employers that inadvertently miss a superannuation payment deadline. The regime is so harsh and inflexible that some Tax Office auditors would prefer not to be told of minor SGC transgressions.

When an employer does not pay the quarterly super contributions for employees by the 28th day of the month after the end of the quarter penalties kick in. These are in the form of a non-tax-deductible superannuation guarantee charge equal to the superannuation contribution that was late, an interest penalty of 10 per cent a year and an administration fee of $20 for each employee affected.

The employer also becomes embroiled in an administration nightmare. Thankfully, in 2008 one of the harsher penalty aspects of the system was removed.

Before the changes, an employer that paid contributions more than a month past the deadline was also required to pay the SGC penalty. This effectively meant an employer paid the contributions on behalf of their employees twice.

Over the years the SGC penalty regime has tended to punish employers that have been trying to do the right thing, while employers that hide behind company structures that purposely try to avoid their obligations got away scot free. They did this by leaving the debt in an empty company shell and starting up business again in another structure.

The ability for these employers to avoid their obligations will hopefully soon be a thing of the past. Legislation is to be presented to Parliament that will make directors personally liable for super contributions, and other tax obligations, that have been avoided by allowing a company to go into liquidation and the business restarting in a new entity. Even though the new legislation will tackle some of the problems with the SGC regime, there is still work to be done. Some employers will continue to avoid their obligations by making sure their assets are owned by other people and entities.

The biggest problem remaining will be that those employers making inadvertent SGC mistakes will still have the full force of the penalty regime inflicted on them.

Questions can be emailed to super@taxbiz.com.au

Max Newnham's book, Funding your Retirement: A Survival Guide, is available in bookstores and as an ebook.