SG amnesty could trigger excess contributions, lawyer warns
Employers have been told to tread carefully with the SG amnesty, with the amnesty yet to be passed as law and the potential for excess concessional contributions to arise.
In May this year, the government introduced a 12-month amnesty period for employers to pay employees any unpaid superannuation entitlements as part of its superannuation guarantee (SG) integrity package.
DBA Lawyers director Daniel Butler said that under the proposal, an employer that has an SG shortfall amount in any period from 1 July 1992 up to 31 March 2018 has the ability to claim tax deductions in respect of SG charge payments made and contributions that offset the SG charge to the extent that the charge relates to the SG shortfall. In addition, the administrative component to the SG charge will not apply.
Mr Butler warned there are some potential concerns with the amnesty, however, including the risk of whether certain quarters qualify for the amnesty due to ATO examination.
“The explanatory memorandum of the SG Bill refers to the ATO’s views on the meaning of examination explained in the ATO’s ruling in MT 2012/3,” he said.
“The ruling states that the term examination is very broad and covers not only traditional audits which the ATO undertakes to ascertain an entity's tax-related liability but any examination of an entity's affairs.”
A range of compliance activities undertaken by the ATO may involve an examination of an entity's affairs, he explained, including reviews, audits, verification checks, record keeping reviews and audits, and other similar activities.
“This means that any of those compliance activities may disqualify an employer from being eligible to access the amnesty for that relevant quarter,” he warned.
Mr Butler also noted that contributions made under the amnesty would broadly be considered concessional contributions and may cause employees to exceed their $25,000 annual concessional contributions cap.
Where concessional contributions are in excess of the concessional contributions cap, they are included in the employee’s assessable income and the employee could also be liable to pay excess concessional contributions charge, he reminded practitioners.
“The amnesty partly circumvents this where contributions are made by the ATO on behalf of the employer by streamlining the exercise of the ATO’s discretion to disregard contributions in relation to a financial year where contributions are made by the ATO on behalf of the employer due to the Amnesty,” he said.
“However, the exception does not apply where the employer has made the contributions directly to an employee’s fund under the amnesty and has used those contributions to offset their SG charge liability,” he said.
This means that where employers make direct contributions to employee funds under the amnesty, the employee may be subject to those concessional contributions being included as assessable income, excess concessional contributions charge and an adjusted carry forward concessional contributions amount, he cautioned.
He also noted that the proposed amnesty still has to be passed as law before it will have actual effect, despite the fact the law is supposed to apply from 24 May 2018.
“The amnesty is already being actively promoted when no law exists and employers are already coming forward without reading the finer detail,” he said.
“No one knows when, if ever, the SG Bill will become law. In particular, it is understood that the Labor Government may not support the Amnesty. The many employers that have already made disclosures to the ATO on the basis of the proposed Amnesty may have therefore been misled.”
Mr Butler noted that the ATO will broadly treat these as voluntary disclosures if the SG Bill does fail to become law.
“There are still a number of serious modifications required to be made in order to make the amnesty an appropriate basis for employers to come forward with legal certainty,” he said.
“Indeed, it would be preferable for the law to be introduced and passed before an amnesty of this nature is announced.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.