Prison sentences for Super Guarantee non-compliance “not justifiable”

Prison sentences for failing to meet Superannuation Guarantee obligations are “not justifiable”, says the Tax Institute.

Treasury has been consulting on tougher Super Guarantee rules. The draft legislation includes a new power for the ATO – to give a direction requiring the payment of Superannuation Guarantee Charge to the tax office. Failing to comply could result in either or both 12 months’ imprisonment or 50 penalty units ($10,500 at current rates).

“In our opinion, this provision should not be introduced as the current penalty regime already provides for significant penalties,” says the Tax Institute in a submission on the draft legislation.

“In our experience, the vast majority of employers seek to comply with their SG obligations. Therefore, rather than introducing a provision that seeks to target the small percentage of non-complying employers, the focus should be on reforming the existing SG regime to encourage full compliance.”

Since the submission was made these changes have been introduced to Parliament in the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, which retains the 50 penalty units and 12 months’ jail penalties.

The Tax Institute submission says that Super Guarantee compliance is important, but the Institute thinks the proposed measures are unlikely to enhance compliance.

“In our opinion, the proposed new penalty under the SG regime will give the ATO too much power and discretion.”

The Tax Institute says directions power should not be enacted, in part because the existing penalties are “already significant” and can adversely affect small and medium businesses.

“In our experience, we are aware of numerous cases where the penalties under the current law have resulted in employers losing their businesses. We recognise that there needs to be consequences for businesses and employers that are ‘recalcitrant’ and /or avoid their SG obligations. However, the impact of making the already harsh SG shortfall and penalty regime harsher may have potentially detrimental results for many businesses.”

“Without adequate review procedures and safeguards, it is inappropriate to proceed with these provisions that may result in imprisonment.”

“Many employers may be caught by a technical interpretation or the complexity of the SG regime. The risk of imprisonment is not appropriate given the uncertainty created by the complex and technical nature of the SG regime.”

The Tax Institute recommends a change from quarterly to annual reconciliation of Super Guarantee, the encouragement of voluntary compliance, aligning the calculation of SG and the SG charge using OTE (Ordinary Time Earnings) and lowering the “unreasonably high” general interest rate.

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