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A ramp up in SG compliance activities has unearthed underlying issues concerning clearing house delays and draconian penalties, says the association.
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ATO’s SG activities expose ‘clearing house debacle’, says IPA
22 March 2024
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10 minute read
An acceleration in SG compliance activities and enhanced data analytics by the ATO has exposed a common problem for small businesses concerning SG obligations and timing issues, according to the Institute of Public Accountants.
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IPA general manager, technical policy, Tony Greco, explained that many small businesses fall foul of their SG obligations simply by failing to take into account the time it takes for funds to move through the super clearing house and into the employee’s super fund.
Under the current laws, a super contribution is only considered paid on the date it is received by the super fund, not the date the small business makes the payment.
“Despite the numerous ATO reminders, many small businesses are ignorant of this requirement and consider that they have met their obligations when the funds have left their bank account,” said Greco.
“The only exception is if the employer uses the ATO clearing house. If this is the case, then the date the funds are received by the clearing house becomes the operative date.”
Processing times can vary extensively between clearing houses, with some taking as long as 10 days.
While this has been a longstanding issue among small businesses, a recent escalation in SG compliance activity by the ATO is increasingly detecting instances where small businesses have missed the SG deadline due to clearing house processing times.
Where the deadline is missed, Greco said the “draconian SG penalty regime comes into full swing”, penalising compliant small businesses as if they are serial offenders.
Greco said the ATO’s systems have recently become far more sophisticated with the expansion of single-touch payroll in how it identifies SG non-compliance.
“Previously their compliance activities were focused on an employee dobbing in their employer which would raise a red flag that the employer was not meeting their SG,” he said.
The ATO now has refined, real-time data from both single-touch payroll and the super funds that it can use to detect non-compliance on a much broader scale.
This enhancement in data analytics means that businesses that miss the deadline by a couple of days due to clearing house delays are being detected in much greater numbers than previously, explained Greco.
“These compliance activities can go back many years causing further angst from employers caught in the compliance nightmare,” he said.
“More and more small businesses will come [onto] the radar as the ATO looks backwards on SG payment history.”
The IPA is calling for reform to the SG system which would differentiate small businesses attempting to do the right thing from those deliberately not paying super.
“Whilst the Government has indicated that the SG penalty regime will be reformed under the proposed Pay Day Super (PDS) model, there is no relief for small business entities anytime soon as PDS is proposed to commence on 1 July 2026,” said Greco.
“What we need is an interim legislative fix, as waiting for the SG penalty regime to be reformed under PDS is a lifetime away.”
Under an interim legislative fix, the IPA said the ATO to be given more discretion on how to apply the penalty provisions for employers trying to do the right thing.
“We're not condoning bad behaviour but the law should be proportionate in terms of how it treats someone who's just a few days late as opposed to someone who hasn't tried to meet the obligation at all,” said Greco.
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