The SG landscape
The Superannuation Guarantee (SG) regime (contained in the Superannuation Guarantee (Administration) Act 1992 (SGAA)) — which penalises employers who fail to pay superannuation on behalf of their employees — is now in its fourth decade. Yet despite the longevity of the regime that has remained relatively unchanged over the years, the failure of thousands of employers to pay the correct amount, or pay at all, also remains unchanged. These failures impact the retirement savings of millions of employees across the country and can lead to lower living standards in retirement.
Interestingly, nothing in the tax or superannuation laws expressly requires employers to pay a requisite amount of superannuation on behalf of their employees. Constitutional limitations — namely the Commonwealth’s power under section 51(ii) of the Constitution which enables the government to make laws with respect to taxation — means the mandatory aspect of the SG regime is to impose a tax, the SG charge (SGC), on employers where there is an SG shortfall for a quarter. Rather than laying a positive obligation on employers to pay superannuation, the law imposes a penalty if they don’t.
Each year, the ATO publishes the SG gap. This is the ATO’s estimate of the difference between what the ATO expects to collect and the estimate of the amount that would have been collected if every taxpayer was fully compliant with the law. For 2021–22, the ATO estimates the net SG gap is $5.2 billion or 6.3%. On face value, this means the ATO expects to collect approximately 94% of the total theoretical SG liability. While this is encouraging, billions of dollars of superannuation remain unpaid or are paid late each year.
Non-compliance with the SG laws ranges from honest, inadvertent mistakes to deliberate and egregious non-payment. The SGC is indiscriminate and does not distinguish between an employer who inadvertently pays just one day late and another who never pays. The SGC model in its current form is overly complex and punitive. The design of the SGC and the associated penalties deter self-rectification and operate as a disincentive for employers to voluntarily report and rectify historical shortfalls. A long-held concern is the draconian application of penalties that do not proportionately reflect the loss to employees or the ‘culpability’ of an employer who is in arrears.
This article focuses on the current law, although it is important to note that Payday super will significantly change the SG landscape from 1 July 2026.
Deconstructing the SGC
The starting point is that employers are liable for the SGC at 11.5% of employees’ total salaries and wages each quarter. The charge is reduced by contributions — worked out as 11.5% (for the 2024–25 income year) of employees’ ordinary time earnings (OTE) — made to a complying superannuation fund by the 28th day following the end of each quarter.
The amount of the charge remaining after this reduction, if any, is the ‘SG shortfall.’ Employers who have an SG shortfall for a quarter are:
- liable for the SGC and additional penalties (payable to the ATO); and
- required to lodge an SG statement with the ATO by the 28th day of the second month following the end of the quarter.
When is a late payment non-deductible?
There is a common misconception among practitioners and employers that late payments are non-deductible. In fact, it is not the lateness of the payment that determines its deductibility. Section 26-95 of the Income Tax Assessment Act 1997 makes the SGC non-deductible but nothing in the tax law makes a late payment of itself automatically non-deductible.
When an employer is liable for the SGC, they are required to pay the SGC and lodge an SG statement with the ATO by the 28th day of the second month following the end of the quarter. Failure to do this attracts the general interest charge (GIC) and additional penalties. Non-compliance with the SG rules cannot be managed by an employer not claiming (or choosing not to claim) a tax deduction for a late payment. Further, where the employer pays the contribution late but fails to pay the SGC to the ATO, the contribution is not non-deductible.
Timing of contributions
Employers can claim a deduction for contributions they ‘make’ to a complying superannuation fund for their employees. The ATO considers a contribution is ‘made’ when it is received by the superannuation fund, which determines whether an employer:
- can claim a deduction for contributions paid in June — if a contribution is not received until early July, it is not deductible in the year of payment (it is instead deductible in the year of receipt); and
- has met their SG obligations by the 28th day following the end of the quarter.
Australia’s privacy laws prevent employers from obtaining information from their employees’ funds. Accordingly, they may face challenges in ascertaining whether contributions paid in June are deductible in the year of payment (only where they were in fact received by the various funds by 30 June).
Clearing houses
Currently, contributions made by eligible small businesses to the ATO’s Small Business Superannuation Clearing House (SBSCH) are taken to have been received by the fund (and therefore meet the employer’s SG obligations) if they are received by the SBSCH by the 28th day following the end of the quarter. However, this administrative approach does not extend to contributions made using commercial clearing houses. Further, this approach applies only for SG purposes and not for determining the deductibility of the contribution — that remains the income year in which the fund receives the contribution.
The Government has announced that the SBSCH will be retired from 1 July 2026, with the introduction of Payday super. The ATO will not be providing a replacement service so employers using the SBSCH service will need to find a commercial alternative.
Remission of Part 7 penalty
Failure to lodge an SG statement for a quarter by the 28th day of the second month following the end of the quarter attracts the ‘Part 7 penalty’. This is automatically imposed on an employer by law and is equal to double the SGC payable by the employer for the quarter (i.e. 200% of the SGC).
The ATO explains its grounds for remission of the Part 7 penalty in PS LA 2021/3. However, the ATO’s ability to remit a Part 7 penalty imposed for historical quarters (from 1 July 1992 to 31 March 2018 that were covered by a one-off amnesty) is generally restricted to at least 100% of the SGC.
ATO approach where employers have done what they could reasonably be expected to do to comply with the law by the due date
In PS LA 2007/1 (GA), the ATO explains some situations in which it may not be necessary to assess an employer for the SGC if it is clear the employer took all reasonable steps to comply with their obligations by the due date.
Relevantly, paragraph 26 of PS LA 2007/1 states:
The Commissioner considers that ATO resources should be directed to those cases where an employer has either failed to provide any superannuation support for their employees or has not made a genuine attempt to comply with their SGAA obligations in a timely way. Where it is clear that an employer has taken reasonable steps to comply with their obligations by the due date but, for reasons beyond the employer’s control the contribution is made late, [the ATO] may decide not to assess the SGC.
This could include where the employer sent the contribution within 28 days of the end of the quarter or allowed a clearing house (other than the SBSCH) reasonable time to make contributions.
It would be interesting to better understand the incidence of SGC assessments being raised where the employer paid the contributions before the 28th day but due to banking, postal or clearing house delays had an SG shortfall for a quarter for the sake of only a day or two.
Related SG matters
Maximum contribution base
The maximum contribution base (MCB) applies to determine the maximum limit on any individual employee’s earnings base for each quarter of any financial year. Employers do not have to provide the minimum support for earnings that exceed the limit. For example, for the December 2024 quarter, an employer does not have to pay $115,000 in SG contributions for an employee earning a $1 million salary. The SG contribution is capped at $7,483.05 (being 11.5% of $65,070, the quarterly MCB for 2024–25).
Interestingly, this makes the maximum contribution for 2024–25 a total $29,932.20, which just falls within this year’s concessional contributions (CC) cap of $30,000. The MCB is indexed each year, so unless the CC cap increases in 2025–26, it seems that the MCB could soon exceed the CC cap. The law contemplates this, and while it has not happened so far, should (or rather, when) the indexed MCB overtakes the CC cap, the MCB will be limited to ¼ × the CC cap × [charge]%.
Employer shortfall exemption certificate
High income earners may be eligible to opt out of receiving some SG contributions if they have more than one employer and expect their mandated CC will exceed their CC cap for a financial year.
Such an employee can apply for an employer shortfall exemption certificate (the certificate) which releases one or more of the employers from their SG obligations for up to four quarters in one financial year. The employee cannot opt out of all employer superannuation and must receive SG contributions from at least one employer for each quarter.
The certificate names the employer(s) that will not be liable for the SGC if they do not make SG contributions on the employee’s behalf for the quarters covered by the certificate. Importantly, the certificate does not require an employer not to pay SG contributions for that employee for the nominated quarter — rather, it ensures the employer is not liable for the SGC if they don’t. The employer can choose to disregard a certificate and continue to make SG contributions.
Further, where an employer does not make SG contributions for a quarter covered by the certificate, the employee should consider how their remuneration entitlements may change and the effect of any relevant award or workplace agreement. For example, less superannuation may mean the employee’s base salary:
- increases — where their remuneration package is inclusive of superannuation; or
- may be unaffected — where their remuneration package is ‘plus superannuation’.
Director penalty notices
Company directors are responsible for ensuring that their company’s SG obligations are reported and paid on time. The ATO can recover a company’s unpaid SGC liabilities from its directors by issuing them with a director penalty notice (DPN). Directors issued with a DPN are each personally liable for the penalty which runs in parallel to the company’s SGC liability. The ATO can also issue an estimate of an SGC liability to the company, which is a separate liability distinct from the underlying liability owed by the company.
Where the unpaid SGC liability is reported to the ATO:
- by the due date for the SG statement — remission of a director penalty (known as a ‘non-lockdown DPN’) is possible where:
- the debt is paid in full; or
- the company is placed into administration or is wound up;
- after the due date of the SG statement or is not reported at all — paying the debt in full is the only way to have the penalty remitted (known as a ‘lockdown DPN’).
Extended meaning of ‘employee’
The meaning of ‘employee’ for SG purposes in subsection 12(3) of the SGAA extends beyond the ordinary meaning of a ‘common law employee’. Independent contractors who are paid under a contract that is wholly or principally for their labour are taken to be ‘employees’ for SG purposes (individual contractors only).
Importantly, no SG obligations arise for:
- contracts entered into with a company, trust or partnership; or
- attributed personal services income (although SG obligations will arise where a personal services entity (PSE) promptly pays salaries and wages to an individual who produced the personal services income for the PSE).
Payday super
Many of the settings discussed above will be substantially affected by the introduction of the proposed Payday super reforms from 1 July 2026. Under Payday super, employers will be required to pay SG contributions for their employees at the time they pay salaries and wages.
The nature of the changes and the features of the new regime are beyond the scope of this article and are best covered in a separate, future article once the legislative framework of the reforms is known.
