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Super guarantee amnesty

Stewart, Tracy & Mylon • Sep 19, 2019

WHAT THE TAX?!! 
Super guarantee amnesty

A one-off month amnesty on superannuation guarantee (SG) will apply from 24 May 2018 for employers to self-correct historical SG compliance.

Since 1 July 1992, when the Superannuation Guarantee Assessment Act was enacted, employers have needed to provide a minimum level of superannuation support for employees. Generally speaking, this included making a payment of superannuation guarantee which was calculated as a percentage of an employee's ordinary time earnings for a particular period.

An employer is required to make the superannuation guarantee payment for an employee within 28 days of the end of that particular financial quarter. The payment must be made on an employee's behalf to a complying Australian superannuation fund.

Failure to make these payments results in the ATO levying the employer with the SG charge. The SG charge is:

•         total of the individual SG shortfalls for each employee for the quarter

•         a nominal interest component calculated by regulations, and

•         an administrative chare which is $20 per employee per quarter.

Unlike regular employer superannuation contributions, SG charge payments are not tax deductible for the employer.

One-off Amnesty

  The introduced Bill will allow an amnesty for employers to make good on previous superannuation guarantee non-compliance. To qualify for the amnesty:

•         the employer must disclose to the ATO that there is a shortfall in SG for a particular quarter for an employee

•         the quarter in which there is a SG shortfall ended at least 28 days before the start of the amnesty period (includes quarters ending up to 31 March 2018), and

•         the ATO has not declared an investigation into SG compliance for that particular employer for the quarter in question.

SG charge under the amnesty will not have an administrative penalty applied to the liability. The employer will, however, have to pay the nominal interest charge. However, these payments will be tax deductible.

The amnesty is proposed to commence from 24 May 2018 as this was the date in which the previous government tabled legislation into parliament.

The previous government was unable to enact legislation which included this provision due to stark opposition from non-government parties. Therefore, the components of the 2018 Superannuation Measures No. 1 Bill was split into two new Bills after the 2019 federal election. The other components of the former Bill have since been legislated with the SG amnesty provision omitted.

Client opportunities

If the legislation passes through parliament, an opportunity exists for current businesses to claim large tax deductions in the current year on these additional superannuation payments. In particular, small businesses that have been operating for a long period of time may have unmet SG obligations for business owners, company directors and working family members.

Specifically, for the quarters prior to 1 July 2009, ordinary time earnings included not only salary and wages, but also directors' fees, remuneration while on sick, annual or long service leave, allowance or bonuses.

Interaction with concessional contributions caps

A contribution made by an employer on behalf of an employee is assessable income of the superannuation fund. This will include SG charge payments. Concessional contribution is any contribution that is deductible to the contributor.

Ordinarily, any payment of SG charge from the employer would not count towards the concessional contributions cap for the individual as the payment is not deductible.

The Bill introduces an exception for the Commissioner to disregard a concessional contribution in this situation. Therefore, individual account holders will not breach their concessional contributions cap as a result of a SG payment made under the amnesty provision.

Example

The Jones family have run a small business since 1995. Since inception, the business has been run in a company structure. There were five individuals who worked for the small business between 1995 and 2005, being Jeff and Carol, their children Henry and Sophia, and Henry's spouse Claudia. In 2010 Jeff and Carol sold the business to Henry and Claudia. They have kept all their records.

During the years 1995 to 2005, no superannuation guarantee payments were made. As the small business only employed family members, this error was never picked up by the ATO. After 2005 the business started using computerised software and started paying superannuation for the family members.

Henry and Claudia obtain old records relating to the business from Henry's parents, and calculate the following.

•         Salaries paid to Jeff and Carol - $50,000 per annum for ten years.

•         Wages paid to Sophia - $25,000 per annum from 1995 to 2000.

•         Wages paid to Henry - $35,000 per annum for five years (1995-2000), then $50,000 for five years.

•         Wages paid to Claudia - $25,000 per annum from 2000 to 2005.

Overall, the amounts payable on superannuation guarantee is as follows:

1 July 1995 to 30 June 1998 - $160,000 per year for 3 = $480,000 × 6% (SG rate) = $28,800

1 July 1998 to 30 June 2000 - $160,000 per year for 2 = $320,000 × 7% (SG rate) = $22,400

1 July 2000 to 30 June 2002 - $175,000 per year for 2 = $350,000 × 8% (SG rate) = $28,000

1 July 2002 to 30 June 2005 - $175,000 per year for 3 = $525,000 × 9% (SG rate) = $47,250

The total superannuation guarantee which was missed was $126,450. Calculations of the nominal interest component, since 1 July 1996 to now, totalled $90,000. The Commissioner assessed the SG charge in August 2018 to be $216,450. It consisted of $64,417 each for Jeff and Carol, $55,408 for Henry, $15,015 for Sophia and $17,193 for Claudia.

After the legislation was enacted, the Jones family made the payment to the various family SMSFs for the outstanding superannuation guarantee, and claimed a tax deduction of $216,450 in the 30 June 2020 tax return. At the company tax rate of 27.5%, this reduced their tax bill by $59,523.75.

Contributions tax was payable at 15% in the family SMSFs, totalling $32,467.50. Overall, the tax benefit across all family group entities was $27,056.25.

Even though Jeff and Carol had retired, the SMSF was able to accept this contribution for them. Also, the contributions caps for Jeff, Carol and Henry of $25,000 was not breached for the 30 June 2020 financial year.

Information sourced using CCH iknow

By Stewart, Tracy & Mylon 01 Apr, 2021
WHAT THE TAX?!! Shortcut to claiming work-from-home deductions in 2021 The ATO has reminded taxpayers about the temporary shortcut method still available to those claiming working from home deductions this year. Taxpayers that opt to use the shortcut can claim a rate of 80 cents per work hour at home for all working from home expenses. The temporary shortcut method can be used by multiple people living under the same roof and, unlike existing methods, does not require a dedicated work area. The shortcut is all-inclusive, meaning taxpayers cannot claim expenses under the shortcut method and then claim for individual expenses such as telephone and internet costs. The alternative existing methods are also available for a taxpayer to either: • claim a rate of 52 cents per work hour at home for the heating, cooling, lighting and cleaning of their dedicated work area and the decline in value of office furniture and furnishings; then calculate the work-related portion of their telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device, or • claim the actual work-related portion of all running expenses, which needs to be calculated on a reasonable basis. Irrespective of the method used taxpayers cannot claim: • personal expenses that are not directly related to earning income • expenses related to children's education • assets that cost over $300; these claims should be spread out over a number of years, and • occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. All claims require the taxpayer to have not been reimbursed for money spent, the expense must be directly related to earning income, and the taxpayer must have kept the necessary records. Information sourced using CCH iknow
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