So I paid super a few days late…crucify me.
Many small business owners often end up with superannuation paid late. This is especially the case when they’re trying to pay super quarterly as opposed to monthly. The black letter of the law actually denies businesses an income tax deduction for superannuation which is paid late. Most employers are trying to do the right thing, and it’s often only during extremely tight cash flow circumstances, that employers end up paying super late, so it’s almost as though the ATO are punishing businesses with tight cash flow by forcing them to pay even more tax, on what should be a genuine business deduction.
Really? So if I pay super late, I can’t get a tax deduction for it?
Correct. Under the current rules, superannuation paid late is disallowed as an income tax deduction regardless of how late it is paid. If you have paid superannuation late it could possibly be overlooked on lodging your tax return unless your financial statements are ‘audited’, which is not the case for most small businesses as this adds unnecessary cost for a service which many do not see value in, especially if it can result in them paying more tax.
The ATO do look at super paid late and will take action accordingly, but traditionally it has been extremely difficult for the ATO to police amounts of superannuation paid late as they just haven’t had the visibility to implement a broad checking process for such amounts.
Why is this important now?
‘Big Data’ is here. By forcing Single Touch Payroll (STP) and the use of superannuation clearinghouses, the ATO have positioned themselves nicely to have Big Brother style eyes and ears on exactly how much superannuation is paid for employees. They can also see exactly how much should have been paid. This means they have all the information required and the ability to identify any superannuation shortfall amounts and automatically disallow deductions for any amounts paid late, which will, of course, increase the amount of tax you have to pay, reducing the amount of cash available for your struggling small business.
..but it’s okay, the ATO is here to help.
The ATO has estimated that in 2014-2015 alone, around $2.85 billion in superannuation guarantee payments went unpaid. This is allegedly why they have now announced a one-off Superannuation Guarantee amnesty which allows employers who have not paid super to declare and pay unpaid amounts, without having to pay an additional administration charge and still being allowed the income tax deduction for those super amounts paid late. This is great news and is welcomed, but we warn business owners that the ATO has provided the perfect setting for a blitz on superannuation paid late, where they’ve even been generous enough to provide time for taxpayers to fix up any discrepancies before taking action.
I’m always one quarter behind with paying my employee’s super. Does this mean I’ll be denied a deduction for ALL the super I’ve paid this year?
Yes, that’s exactly what it means, but this is nothing new. The only thing that has changed is that the ATO now have visibility on exactly which businesses they can deny the deduction for.
Is there anything I can do?
Yes. If you get behind in your superannuation payments, rather than paying the oldest amount first and constantly being behind in your payments, consider quarantining those old amounts and making an arrangement to deal with them over an extended period of time. Then ensure you pay any new amounts on time as required. This will mean:
- You will only lose the tax deduction for those amounts which were paid late, and by quarantining the overdue amounts, and ensuring all new amounts are paid on time, you’ll have drawn a line in the sand on those amounts for which a tax deduction is denied.
- You will now save on administration fees and penalties because they will only be on the older super being paid late. You will not have penalties or fees on the new amounts now being paid on time.
- Using the cash which you save on tax by now being allowed the deduction, you will over time, catch up on the old unpaid amounts to be back on track with your superannuation payments far quicker than you otherwise would.
Superannuation Guarantee Amnesty – Important point
- It is proposed to have effect from 24 May 2018, but has not yet passed as law.
- It Is only proposed to be open for 12 months.
- It’s still the employer’s responsibility to ensure that all superannuation is paid for employees, regardless of how late it is.
- The amnesty does not mean you don’t have to pay superannuation on time.
- You still have an obligation to pay superannuation on time.
NO ADVICE – Disclaimer:
The information contained in this presentation is general information only and has been prepared without taking into account your personal objectives, financial situation or needs. The information provides a high-level summation of selected parts of legislation only. The legislation is complex and includes a number of conditions and overrides that may apply to individual situations. Interpretation and application of the information to your specific circumstances require consultation with an accountant with a detailed understanding of your personal and taxation affairs and a qualified financial advisor before taking any action.