July 24 - Books - Tax Accounting

How to Avoid Super ATO Audit Stress

There are many super stressful things that go hand in hand with being a business owner, but if you’re prepared and follow our handy best practice recommendations, Superannuation ATO audits don’t need to be one of them. 

Read on below to find out more about what Super Guarantee Charge statements are, the costs involved if super isn’t paid on time, how to ensure you’re ahead of your super payments and how this can play out for businesses. 

What are Super Guarantee Charge (SGC) statements?

Super Guarantee Charge statements are critical financial documents for any Australian business. They outline any superannuation contributions due for employees that haven’t been paid into their super funds by the mandatory due date.

These statements are more than just paperwork. In fact, they are a legal obligation: businesses must complete and lodge these to the Australian Tax Office (ATO) within one calendar month after the super due date. Failure to do so can result in penalties, which can significantly impact a business’s financial health.

Understanding the costs when super isn’t paid by the due date

When super payments aren’t made on time, the costs to a business can be substantial. Some of the potential consequences include:

Loss of Tax Deduction: 

Superannuation contributions are typically tax deductible, but only when paid on time. When super payments are late, this important deduction is forfeited, resulting in a higher overall tax bill.

Administration Fees: 

The ATO levies an administration fee for late super payments. This can be as much as $20 per employee, per quarter – a significant cost for businesses with several employees.

Nominal Interest: 

On top of the other costs, a nominal interest charge of 10% per annum is applied to the outstanding super amount. This can add up quickly, further exacerbating the financial impact of late payments.

Maximum Penalty:

On top of these, a maximum super guarantee charge of up to 200% of the super guarantee shortfall can be imposed by the ATO if super obligations are not met. This penalty can significantly increase the cost of late or unpaid super, providing a strong incentive for businesses to make super payments on time.

Best practice for paying super and staying ahead 

To avoid these pitfalls, businesses should consider the following best practices:

Leverage technology: Utilise accounting software with inbuilt super payment functionality. Xero offers a feature where businesses can authorise direct debits from their bank account to cover super payments. This automatic process reduces the risk of human error and late payments.

Align super payments with payroll: Rather than handling super payments separately, consider aligning them with your regular payroll processing. This approach simplifies administration and improves cash flow management. Rather than facing a large quarterly payment, the super obligation is spread over each pay cycle.

Stay updated with the ATO’s rules and regulations: Staying on top of superannuation obligations not only helps businesses avoid unwanted ATO stress and penalties, it’s also a key part of being a responsible employer. Keeping your employees’ super payments up-to-date ensures they’re being provided for in their retirement, demonstrating your commitment to their long-term wellbeing.

How this works in business

Let’s assume we have a business owner, John, who has three employees, Emily, Dave, and Sarah. Their salaries are $240,000 per year, and the Superannuation Guarantee (SG) rate is 11%.

For the 2023-2024 financial year, John hasn’t followed our best practice recommendations, and fails to pay any superannuation for Emily. Here’s how the Superannuation Guarantee Charge (SGC) and potential penalty would be calculated:

Superannuation Guarantee (SG) Shortfall: The SG for the employees should be 11% of the $240,000 salary, which equals $26,400. This amount is the Superannuation Guarantee Shortfall – the amount of super that John failed to pay.

Superannuation Guarantee Charge (SGC): The SGC includes the SG Shortfall, plus interest and an administration fee. The interest is calculated at 10% per annum, and the administration fee is $20 per quarter. If John’s non-payment spanned four quarters, the interest would be $2,640 ($26,400 * 10%) and the administration fee would be $240 ($20 * 4 * 3 employees). So, the total SGC would be $29,280 ($26,400 super  + $2640 interest  + $240 admin fee).

Potential Penalty: If John fails to submit an SGC statement by the due date, he could also be liable for additional penalties. The maximum penalty is 200% of the SGC. So in this case, if the ATO imposed the maximum penalty, it would be 200% of $29,280, which equals  $58,560.

So, John’s total liability for the year – including the unpaid super, SGC, and potential penalty – would be $87,840 ($26,400 + $2,640 + $58,560). 

This example illustrates how seriously the ATO audit takes late or unpaid super, and why it’s so important for employers to meet their super obligations on time.

It’s worth noting that the ATO does have discretion over whether to impose a penalty and how much it should be. Factors they might consider include whether the employer made an honest mistake, whether they’ve previously complied with their super obligations, and whether they’ve cooperated with the ATO to resolve the issue.

Our take? Save yourself the super stress and follow our best practice guide to stay ahead of the game. If you have any questions about Super ATO Audits or paying superannuation to your employees, get in touch with us today!