Late Superannuation Contributions are a Bad Deal for You
We would like to save you the pain and expense of making late superannuation contributions for your employees, or not paying them at all. There have been recent changes to the way the ATO applies penalties when superannuation contributions are paid late, and we would like you to be aware of the significant expense that can result.
When must superannuation contributions be paid?
Superannuation contributions must be received by the superannuation fund within 28 days of the end of a quarter. There is a common misconception that superannuation contributions must be paid by the employer by the 28th day after the end of the quarter. This is not correct. It is the date of receipt by the superannuation fund that is important. However, if you are using the ATO Small Business Clearing House and if the contributions are received by that clearing house by the 28th day following the end of the quarter, you will be treated as having made the contributions to the superannuation fund on time.
Why it is a bad deal to pay late or not at all?
The Australian Superannuation Guarantee system is designed to penalise severely employers who pay superannuation contributions late or who don’t pay the contributions. This is because the employer must pay, at least, the Superannuation Guarantee Charge (“SGC”). For a quarter the penalty would be at least:
In addition to the SGC, penalties can be levied if you have not lodged with the ATO a Superannuation Guarantee Statement. These penalties can be up to 200% of the SGC.
Both the SGC and the penalties are not tax deductible. In other words, you are unable to claim a tax deduction in your 30 June tax return for any late paid superannuation contributions made through the year. It will often be the case that the combined after-tax amount of the SGC and penalties is many multiples of the superannuation contributions paid late.
During one quarter of a year, you have 10 employees. Your total wages are $150,000 of which $100,000 is subject to superannuation, so you owe $9,500 in super as well as the balance of $50,000 for overtime (which does not attract superannuation). The following is the result of late payment of your superannuation:
1.) Shortfall amount of $9,500 (this is the original superannuation you didn't pay or paid late)
2.) Extra contribution for the overtime - late payment means this is now subject to superannuation ($50,000 x 9.50%) $4,750
3.) Interest - A minimum of $1,425 (this assumes that the SGC Form is lodged 1 year late)
4.) Administration Charge (10 employees x $20) = $200
***Therefore, you have now increased the original amount owing $9,500 to $15,875 (an avoidable increase of $6,375).
5.) Assuming the ATO contacted you about and applied the Part 7 penalty, this additional amount would then be $28,500 ($9,500 + $4,750 multiplied by 2)
The total is now $44,375
How do the items above affect your tax? Items 1, 2, 4 and 5 are not tax deductible, so this means you pay an extra $2,850-$13,312 in tax depending on your tax rate (assumes a 30% tax rate).
Should you have any queries in relation to the above information please don’t hesitate to contact our office on 9367 4199 or at firstname.lastname@example.org.