01 Feb Paid my Super? You can DPN’D on it!
Tax reform is at the forefront of the Turnbull Government’s economic and fiscal agenda. The latest in a string of proposed legislative amendments, centres on superannuation compliance and recovery and is contained in the recently released exposure draft bill entitled Treasury Laws Amendment (Taxation and Superannuation Guarantee Integrity Measures) Bill 2018 (“the Bill”).
The Superannuation Guarantee Cross-Agency Working Group (Workgroup) was established in December 2016 to report on the operation, administration and extent of non-compliance in the Superannuation Guarantee (“Super”) system in Australia. In March 2017, the Workgroup released its final report (“report”), containing recommendations on options to improve Super compliance.
The ATO estimate that for the 2014–2015 financial year, the shortfall in required Super contributions was $2.85 billion (or 5.2% of the total estimated $54.78 billion in Super employers were required to pay). The analytics suggest that non-payment is largely confined to SMEs.
For the most part, the amendments are uneventful and reflect attempts to modernise compliance processes and reporting; cut red tape; enhance disclosure and maintain the integrity of the reporting system. To this end, they include providing the Commissioner of Taxation (COT):
power to issue a direction to pay or undertake specific education;
authority to disclose information to an individual about the failure of the individual’s employer;
extended Single Touch Payroll reporting obligations for all employers by 1 July 2019; and
power to apply to the Federal Court for an order compelling a company to provide specific security.
There is however, devil in the detail. Buried in the amendments, Directors face an important compliance and recovery change that has the propensity to significantly increase their financial exposure.
Reform in Focus – Director Penalty Notices (“DPNs”)
DPNs can make a Director or Former Director personally liable for a Company’s unpaid PAYG withholding and Superannuation Guarantee Charge (“SGC”) obligations. The Bill seeks to improve the recovery powers for the ATO by tightening the operation of DPNs and streamlining reporting obligations.
a) Aligning Obligation Timings – Estimates and Underlying Liability
The Explanatory Memorandum (“EM”) to the Bill highlights this current DPN exploitation risk:
an obligation to pay an estimate of an underlying liability arises at the time notice of the estimate is given; but…
the obligation to pay the actual underlying liability (upon which the estimate is based) was, or arose some time prior to the estimate being given.
The amendments seek to close this “loop hole” by aligning the “initial day” for estimates and underlying PAYG withholding and Super liabilities.
For PAYG liability estimates, the initial day will be from the day on which the company would have been obliged to pay the underlying liability.
For Super liability estimates, the initial day will be from end of the quarter to which the estimate relates to.
b) Tightening Director Penalty Remission on Super
- eliminates the “3 month period from due date” for reporting Super liability to the COT and placing the company into voluntary administration or liquidation, before a director penalty is “locked- down”; and
- imposes a “lock-down” date equal to the “due date”.
This change is restricted to Super (including estimates). There is no change to the lock-down provisions associated with PAYG withholding liabilities and estimates). The amendments contemplate application to notices issued on or after 1 July 2018.
Given the public anger and significant government revenue risk that accompanies unpaid super, there is likely to be little if any modification to the Bill and its passage through both houses of parliament and into law ought to take place expediously, certainly on or prior to 30 June 2018 (as contemplated). Directors can then expect the ATO to intensify the use of its enhanced DPN powers from 1 July 2018. This will further expose those Directors who fail to keep their house in order and who negligently or intentionally fail to discharge their Super reporting obligations.
No sooner will the dust settle on these amendments, then the Government will turn its focus to the final DPN frontier, making Directors personally liable for unreported and unpaid GST. Watch that space.
Article written by Fabian Micheletto, Director SV Partners Victoria