Dana Fleming discusses the Super Guarantee Gap reforms released by the Australian Taxation Office on 1 September 2017.
Released on Friday 1 September 2017 by the Australian Taxation Office (ATO) is the 'Super Guarantee Gap'. This is the difference between the amount payable by employers to meet their Superannuation Guarantee (SG) obligations for their employees and the actual amount received by employees’ super funds.
For 2015, $2.85 billion was estimated to not have made its way to employees’ super accounts.Together with voluntary savings and the pension, SG is a key pillar of ensuring working Australians can retire with dignity. So how can this happen?
The ATO undertakes extensive case work to ensure compliance, including fielding over 20,000 reports each year but the reality is that SG is only required to be paid quarterly and is not aligned with shorter pay cycles. In these circumstances, there is a high risk of non-compliance when businesses come under financial stress. The ATO estimates that 50 percent of unpaid super is attributable to insolvency.
This issue has long been an area of focus by super funds who have implemented their own monitoring systems and data analytics to endeavour to identify and pro-actively manage “problem” employers to protect their members and reduce the SG Gap.
Pleasingly, after considering the report of the SG Cross-Agency Working Group, released on 14 July 2017, the Government has now announced a package of reforms to improve SG non-compliance including at least monthly reporting to the ATO and enhanced recovery powers for the ATO.
The most powerful initiative is to extend ‘Single Touch Payroll’ (STP) – a reporting system which will provide real-time visibility to the ATO at the time of payment of wages to employees of the associated pay as you go (PAYG) withholding and super information. STP applies to businesses with greater than 20 employees from 1 July 2018 and to all Australian businesses from 1 July 2019. This will enable the ATO to identify patterns and potential non-compliance earlier and provide a greater focus in its reviews.
Whilst these are welcome reforms, arguably the single most powerful reform the Government could make is to require employers to pay SG at least monthly, rather than quarterly, and potentially to align SG payments with pay cycles. Whilst appropriate transitional arrangements may be required, especially for small business, it’s puzzling that this simple step has not been taken.
For those employers wanting to reduce the risk of under or overpaying SG and improve compliance, KPMG’s Employment Tax Data Analytics can assist by analysing payroll code configurations of ‘ordinary time earnings’ and by identifying contractor payments that may be at high risk of SG shortfalls.