In its submission on the payday super exposure draft legislation to address unpaid super, the IFPA has highlighted the challenges faced by employees who nominate an SMSF as their choice of fund, particularly when the SMSF has lodged its annual return late.
“Under current ATO administration, this situation is handled quite rigidly, and we believe more flexibility is warranted,” the submission read.
“When an SMSF fails to lodge its annual return on time, the fund is removed from the Super Fund Lookup (SFLU) register, meaning it cannot receive employer SG contributions until lodgement is complete. While we understand this rule is intended to encourage timely lodgement by trustees, it can create significant issues for employees – especially where SG contributions are required to be made on payday.”
The IFPA continued that in such cases, the only alternative is to redirect contributions to another fund until the SMSF is reinstated on Super Fund Lookup, which can cause administrative burden and confusion for both employees and employers.
“We recommend that employees be given the opportunity to challenge this rule where the circumstances are beyond their control. In our view, it should be reasonable for a fund to continue receiving SG contributions in genuine, one-off cases of late lodgement,” the submission read.
While the IFPA said it supports the ATO imposing penalties on trustees who consistently fail to meet their obligations such as those who have not lodged returns for several years, it said applying the same penalty to all SMSFs, regardless of the nature or frequency of the delay, is overly harsh.
“Trustees who are late with lodgement on a one-off or minor basis should retain the ability to receive SG contributions. A more proportionate and flexible approach would strike a better balance between encouraging compliance and ensuring fairness for SMSF members and their employers,” it said.
The IFPA also urged the government to implement other refinements to the legislation to ease the compliance burden on small businesses and improve the system’s fairness and functionality.
“Payday super is a win for employees, but to make it work in the real world, we need a system that’s modern, efficient, and fair – especially for small businesses,” Natasha Panagis, head of technical services at IFPA, said.
The association made a number of other key recommendations to improve the payday super regime, including exempting micro businesses and allowing them to continue making quarterly SG contributions.
“Alternatively, micro businesses should either transition to a monthly superannuation guarantee (SG) payment cycle or be given a longer implementation period, such as an additional two years, to adapt to the payday super model,” the submission read.
It also recommended that the government regulate super clearing houses and hold them accountable for timely payments, and that employers should not be penalised for delays outside their control.
“Small employers will face the biggest hurdles under the new system. A phased rollout and realistic timelines will give them a fair chance to succeed,” Panagis said.
“And for employees with SMSFs, we need more flexibility – one late lodgement shouldn’t jeopardise their super.”
To truly deliver on the promise of payday super, Panagis said, the underlying systems must be brought up to speed.
“That means upgrading superannuation clearing houses, payment platforms, and payroll systems to handle more frequent contributions in real time. Without these improvements, we risk setting employers up to fail.”
Manual lodgements by the ATO are supposed to take up to 56 days to process. Hardly acceptable when they can scan the document and using AI load it into their system. A task of several minutes, hardly worthy of a 56 day “grace” period!
Recently assisting an SMSF wind-up, the ATO’s slowness left opportunity for them to send out PAYG notices on multiple occasions, contribution cheques for one of the members, which had to be returned on three separate occasions. And, had we not closed the bank account (which the ATO tell you NOT to do until the very last), the fund would have remained opened because of the ATO’s own system forwarding deposits. All this when the Return had been lodged and prior to lodgement the ATO had been notified the fund was closing.
I have requested the ATO allow agents or Trustees to FLAG funds which have lodged a FINAL return, so no further PAYG notices, contributions any anything else happens. A bit like a bank does with a deceased account. Not hard! But no-one is listening.
And it sounds like the ATO need to note their system when a manual return is received/lodged even if they have not processed it, to stop the merry-go-round that Graeme has experienced.
It would be great if the ATO took onboard some of the practical feedback from the public. This is our system too.
My own experiences as a truly hands on trustee with my fund ( I do the financial statements using excel and lodge and prepare and lodge the Annual Statement myself on paper).
I have a end Feb due date and I lodge in mid Feb when audit is complete.
Then nothing happens with processing it and so I get an automatic letter from ATO saying I am late. Then I ring ATO, they confirm received this year Feb 13th and can ignore the letter.
But in meantime, and as i write this my fund is still removed on Super lookup. Not a problem for me – no employment, no super guarantee involvement.
But next year my lodgment deadline becomes end of Oct because of supposed late lodgment. More phone calls to ATO proving lodgment on time to get the due date back to Feb again. It seems they are incapable of getting a paper return lodgment entered into the system as lodged until they actually get around to processing and raising the assessment.
I don’t know how a paper lodger with arms length SG contributions will go from hereon.