Behind with your super payments? Understand the penalties for not paying super and how to avoid them

The ATO has estimated that, conservatively, Australian businesses have failed to pay about $17 billion in superannuation in the eight years up to 30 June 2016.

So what powers do the ATO have to enforce payment of superannuation and what are the penalties for not paying super?

ATO’s general power to collect super

When superannuation is not paid on time, it becomes payable to the ATO as superannuation guarantee charge (SGC).

This means that it is ultimately the ATO’s responsibility to collect unpaid superannuation on behalf of employees.

With the introduction of single touch payroll, which will apply to all businesses (including those with 19 staff or less) by 1 July 2019, the ATO will be more aware than ever of the status of a business’s superannuation and PAYG tax obligations.

The ATO will therefore now be quicker to take action to recover unpaid superannuation. This will include exercising the new powers granted to it, which are set out below, and also in issuing Director Penalty Notices.

New penalties for not paying super

New legislation was passed in December 2018 that gives the ATO the power to direct employers to pay unpaid superannuation.  As set out above, due to the implementation of single touch payroll the ATO will now be more aware than ever of when a business is failing to meet its superannuation and PAYG tax obligations.

Failure to abide by a direction to pay superannuation can result in a fine of up to $10,500 or 12 months imprisonment.

The new legislation also gives the power to the ATO to direct business owners to undertake educational courses regarding their obligations to pay superannuation.

Tax avoidance taskforce funding

The government has also provided funding to the ATO specifically to investigate and take action in respect of tax avoidance, including failure by businesses to pay superannuation.

The total amount of funding provided is in the vicinity of $700 million over a four-year period.

Director Penalty Notices for superannuation

We have written in the past about how and when the ATO will issue Director Penalty Notices.  However, recently we have been assisting more and more directors who have received Director Penalty Notices for unpaid superannuation.

Commonly, these notices are based on estimates of superannuation owed, which the ATO has carried out using information available to it.

Where the ATO has had to estimate superannuation owed and then issued a Director Penalty Notice, it is nearly always the case that it is a lockdown Director Penalty Notice, as superannuation has not been reported to the ATO by lodging SGC statements.

In these circumstances, the amount claimed by the ATO cannot be avoided by the director by placing the company in liquidation or voluntary administration.

What should you do to avoid penalties for not paying super?

Business owners should always ensure that employees’ superannuation is paid.

However, often, when a business cannot pay its debts, superannuation and tax debts are the first to go unpaid.

Given the ATO’s crackdown on businesses that don’t pay superannuation, it is now more important than ever to obtain professional advice on the available strategies and options you have.

So, if you find yourself facing difficulties in paying superannuation, please get in contact with us for a free, no-obligation discussion as soon as possible.

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