When an employer fails to meet their SG obligations for a particular quarter (i.e., they have an ‘SG shortfall’), they are liable to pay the ‘superannuation guarantee charge’ (SGC) and must lodge an SGC statement. The SGC statement is due to be lodged (and paid) by the 28th day of the second month following the end of the relevant quarter. For example, for March 2020 quarter, the due date for payment of SG contribution is on 28th of April and the due date for lodgment of SGC statement and payment is on 28th of May.
Pursuant to the Superannuation Guarantee Charge Act 1992, the amount of the SGC payable by an employer for a particular quarter is the amount of the SG shortfall for that quarter. Broadly, pursuant to S.17 of the SGAA, the SG shortfall for a quarter is calculated as the sum of the following three component:
- the total of the employer’s individual SG shortfalls for the quarter; and
- the employer’s nominal interest component for the quarter; and
- the employer’s administration component for the quarter.
Since 1 January 2006, employers who fail to make the required quarterly contribution for an eligible employee by the due date, but still make a contribution at a later date (i.e., after 28 days following the end of the quarter), may (subject to eligibility) elect to use the late contribution to reduce their SGC liability. Note, however, that any late contribution cannot reduce the administration component of the SGC. Refer to S.23A of the SGAA.
Superannuation Guarantee Charge liability
- Total of individual SG shortfall(s) – the first component of SGC is the total of the employer’s individual SG shortfalls for the quarter (i.e., the sum of SG shortfalls for every employee who was underpaid SG for the quarter). Each employee’s SG shortfall amount for a quarter is made up of two parts:
- SG shortfall (payable when the employer: 1) does not pay enough SG contributions for an employee(s); or 2) make no SG contributions for an employee(s);or 3) pays the SG contributions to the fund after the due date) = (salary or wage base(rather than OTE) for the employee for the quarter) x (shortfall percentage for the quarter).
- Choice shortfall – payable when the employer fails to meet their choice of fund obligations concerning SG contributions for an employee(s). The choice of shortfall is limited to $500 per employee, per notice period (which can be made up of multiple quarters).
- Nominal interest component – an additional amount payable (currently charged at a rate of 10% p.a.) by the employer to compensate employees for fund earnings that would have accrued had the employer made the SG contribution on time. Broadly, the nominal interest component is calculated based on the SG shortfall amount (including the choice shortfall), and accrues from the beginning of the relevant quarter until the day the SGC becomes payable (i.e., generally when the SGC statement is lodged).
- Administration component – employers who are liable to pay the SGC are required to pay an administration component of $20 per employee, per quarter.
- Part 7 penalty – an ‘additional SGC’ is payable as a penalty under Part 7 of the SGAA (‘Part 7 penalty’) where an employer fails to lodge an SGC statement by its due date. The maximum Part 7 penalty payable is 200% of the amount of the SGC payable. However, the Commissioner has discretion to remit all or part of the penalty in accordance with guidelines outlined in Practice Statement PS LA 2019/1 (discussed in the future articles).
- Administrative penalty – a general administrative penalty may be payable, where the employer has underpaid their SGC liability because they made a false or misleading statement (i.e., the amount reported on an SGC statement was less than what it should have been) or where a default assessment has been issued by the Commissioner. The base penalty amount can be up to 75% of the SG shortfall, but can be varies according to the circumstances.
- Loss of deduction – the SGC imposed on the employer is not deductible for the income tax purposes. Refer to S.26-95 of the ITAA 1997. Further, any late contribution that has been offset against an SGC liability is also not deductible for the employer. Refer to S.290-95 of the ITAA 1997.
- General interest charge – if an employer is late in making payment of the SGC, they are liable to pay the general interest charge (GIC) on the outstanding amount of the SGC (excluding the nominal interest and administration components of the charge). The GIC accrues from the day the SGC becomes payable (i.e., when the SGC statement is lodged or when a default assessment is issued by the ATO).
Director penalty regime applies to SGC liabilities
- For an SGC liability that relates to the June 2012 (or a later) quarter, the director penalty regime applies if a company (including a trustee company) fails to pay the SGC in full by its due date. That is, each director automatically becomes personally liable for a penalty equal to the unpaid amount. Note, an exclusion may apply for directors appointed after the due date for SGC liabilities (provided they resign within 30 days of being appointed).
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- Superannuation Guarantee Amnesty (1) – Employers’ Obligations
- Superannuation Guarantee Amnesty (3) – Eligibility for The SG Amnesty
- Superannuation Guarantee Amnesty (4) – Benefits from The SG Amnesty
- Superannuation Guarantee Amnesty (5) – Increased Minimum Penalty for Employers Ignore the SG amnesty
- Superannuation Guarantee Amnesty (6) – Contributions Made Under the SG Amnesty (1)
- Superannuation Guarantee Amnesty (7) – Contributions Made Under the SG Amnesty (2)