Employers may face a 200% penalty rate + interest for late or unfulfilled superannuation contributions. Although this has been the case for years, the ATO previously had adopted a lenient and forgiving approach. In many cases, where the employer had fulfilled the required contribution past the due date, they walked away with a small 5% or 10% penalty. Furthermore, between 24 May 2018 and 7 September 2020, the ATO provided employers with an Amnesty period, If they voluntary disclosed  liabilities for quarters from 1 July 1992 to 31 March 2018 , they would be exempt from the 200% Super Guarantee Charge (SGC).

As of 25 November 2021, the ATO is guided by the new Practice Statement Law Administration 2021/3 (PS LA 2021/3), which tightened the rules and made it more likely for employers to incur a harsh penalty unless they lodge the Superannuation Guarantee Statement (SGS) in time. 

The penalty system:

As an employer, if you fail to make your required superannuation contributions in full and you do not lodge an SG statement within 28 days after the relevant quarter, you will be liable to a penalty made up of:

• Super Guarantee Charge – 200% of the original amount (on top of the original amount)
• Nominal annual interest which you will accrue until the SGS has been lodged, rather than until you have completed the payments 
• Administration fee of $20 per employee per quarter

The ATO can make penalty remissions so that the SGC is reduced to less than 200%. However, their discretion has been limited through the 4 Step Penalty Remission Process, which caps the available remissions for certain circumstances.

The 4 Step Penalty Remission Process

Step 1: The ATO considers remission based on the employer’s attempt to comply with obligations through making late payments, according to the table below. This guideline did not exist pre-2021.

Late Payments Compliance	Remission	Liable SGC
Late payment in response to ATO compliance action such as audit	10%	180%
Late payment made after initial ATO contact but before compliance action	15%	170%
Late payment 9 months after due date before ATO contact	30%	140%
Late payment 6-9 months after due date before ATO contact	33%	134%
Late payment 3-6 months after due date before ATO contact	36%	128%
Late payment less than 3 months after due date before ATO contact	40%	120%

Step 2: The ATO considers remission based on the employer’s attempt to comply with obligations through lodgement SGS. The table below compares the similar 2021 and 2020 remission limits in this aspect.

SGS compliance	2021 Remission	2020 Remission
Employer has demonstrated repeat disengagement to previous SGC assessments or is engaging in a phoenix arrangement*	0%	0%
Employer failed to lodge SGS or provide relevant information in response to ATO compliance action	25%	25%
Employer gives information after lodgement due date in response to ATO compliance action	40%	40%
Employer lodges SGS in response to ATO compliance action	60%	50%
Employer lodges SGS prior to SGC assessment after due date and initial ATO contact before ATO compliance action	80%	80%
Employer lodges SGS after due date before ATO contact	90%	90%

Note that the remission percentages are added to those from step 1. For example, if, according to step 1, an employer is entitled to a 10% remission for making a late payment in response to ATO action, and they also lodged a SGS in response to ATO action, they would be entitled to an additional 40% remission. That means they would be entitled to a 50% remission and only liable for 100% (50% x 200%) SGC. The exact process occurs through step 3 and 4.

Step 3: The ATO considers remission based on the employer’s compliance history. The ATO considers the employer’s history in the three years leading up to the disclosure or ATO compliance action.

Compliance History	2021 Remission	2020 Remission
Good	15%	No change
Neutral	No change	-5%
Poor	-15%	-10%
Extremely poor	-30%	-10%

Note the greater emphasis on compliance history in 2021. If an employer is found to have extremely poor compliance and they are not entitled to remissions in any other steps, they will be liable for a 260% (200% x 130%) SGC.

Examples of poor compliance include:

• Lodging SGS late
• Not adequately addressing outstanding SGC debt
• Previously issued with SGC default assessment

Examples of extremely poor compliance include:

• Repeatedly failed to meet obligations after multiple ATO compliance actions
• Repeatedly attempted to obstruct or hinder compliance action

Step 4: The ATO considers mitigating factors. The ATO will not consider factors already considered in earlier steps in this step. While the 2020 PS LA did not pose percentage limits and provided broad discretion, the new 2021/3 PS LA categorises mitigating factors under 5%, 10%, 20% and 50%.

Limiting Factors	Remission
Error Honest mistake  Issue is addressed Payment arrangement is entered	5%
Non-compliance occurred in the first year of operation and principals had no previous business experience	10%
Ill health of employer or key employee Significant proportion of superannuation is paid on time Miscalculation due to complex legal interpretative issue Third party compliance issue	20%
Malfunction of key ATO system Natural disaster significantly impacting ability to comply with obligations Misclassifying workers despite reasonable steps to classify them correctly	50%

What can employers do?

Fill out the form as accurately as possible as soon as possible. This will ensure you will no longer accrue unnecessary interest, and it will also increase your chances of reducing SGC.

If you are unhappy with the assessment outcome, you can appeal to the tribunal, which does not necessarily have to follow the practice statement. 

If you have any questions, please contact us.

The tax auditing process can seem to be wildly complicated and daunting. Things may seem even more difficult if you end up needing to dispute results. However, you can set yourself up for a straightforward and successful process by gaining an understanding of how the ATO audit process and disputes operate, and adopting a strategy based on this.

The Audit Process

The ATO’s objective when conducting audits is to ensure that you are complying with Australian tax law. It is therefore a primarily investigative process involving intensive case examinations.

The ATO’s approach is deducing whether you are honest and trustworthy in running your small business. They may ask you questions they already know the answers to, just to verify the accuracy of the information you provide them with. The information they require will vary depending on the scope of the audit and what their unique concerns are, which should be specified during the initial meeting.

Audit Strategy Tips

Avoid giving them a dump of information. Focus on giving them only what is relevant and act genuinely during the investigation process. This will help assure them that you are reliable. 

Avoid making claims unless you are sure that it is accurate. Avoid guessing. Since part of their role is to ascertain whether the information you originally provided them with is accurate, the ATO will test later provided information against earlier provided information.

Keep your calm. If you have given them relevant accurate information, there is no need to feel under pressure during their testing procedures. 

Do not rush them. This could frustrate the process. Allow them to move through their procedure at their own pace. Audits can take a couple of years to complete.

Review your material and understand your position. Since the material is likely to be dense, it is important to make sure it is ordered and accurate. Look out for mistakes and if you find any, make sure to notify the ATO.

The Dispute Process 

If you disagree with a tax audit result, there are multiple possible stages to pursue. The first two are internal with the ATO, and the second two are external statutory procedures outlined in Part IVC of the Tax Administration Act 1953 (Cth).

Stage 1: In-house facilitation. This is the first possible stage of a dispute. After processing your request form, an impartial professionally trained facilitator will meet with you and the auditing team. Their aim will be to identify issues, develop options and attempt to reach a resolution.

Stage 2: Independent Review. Small businesses with a turnover less than $10 million are eligible to request an independent review for a number of tax types including income tax and GST. 

You will need to specify the areas of disagreement. An officer who has not had any prior involvement in your audit will then review all the material and hold a case conference with the audit team. At this case conference, information that was previously provided will be considered. Following this, the reviewer will come to an outcome and prepare written recommendations on each issue in dispute which the audit team will incorporate in the final decision. 

Stage 3: Objection. If you are unhappy with the previous outcome, the next stage would be to lodge an objection. Section 14ZU sets out the requirements. The form must be completed in writing, specifying arguments against the ATO’s finding. It also needs to be within the prescribed period. The Commissioner of Tax will then decide whether to partly allow it, wholly allow it, or disallow it. 

Stage 4: Administrative Appeals Tribunal or Federal Court. If you remain unsatisfied, you can appeal it to either the AAT or the federal court. Generally, at this stage, you will be limited to the grounds you have previously stated. However, your objection will not be read narrowly (Re Confidential and Commissioner of Taxation (2012) 56 AAR 273) and you may seek approval to alter your existing grounds of objection (Gilder v FCT (1991) 22 ATR 872). If you are disputing an assessment, you will need to show that it is inaccurate by showing what it should have been. If you are disputing a decision, you will need to show that it should not have been made, possibly in favour of an alternative. 

By understanding the process and adopting the mentioned strategies early in the process, you will give yourself the best chance of having a successful outcome. The multiple dispute stages can help you achieve a satisfying result, but it is advisable to start off on the right track to minimise uncertainty and costs.