Nowhere to hide on super non-payments as ATO lifts the lid

The Australian Taxation Office (ATO) will send more proactive “nudges and warnings” to employers who aren’t complying with their Superannuation Guarantee obligations under an enforcement technique enabled by the increasing availability of taxpayer data.

Detailed in a speech to the Association of Superannuation Funds of Australia (ASFA)’s Policy Roadshow, ATO deputy commissioner James O’Halloran said efforts to implement the program are already underway.

“We now have an unprecedented level of visibility of super information at the account and transaction level,” he said.

“As we gain increased assurance in the data and the conclusions we can draw from it, we’ll use it to move sensibly into proactive ‘nudges’ and warnings to clients.”

The enforcement scheme has been enabled by recent improvements to data flows going into ATO systems, including through single touch payroll (STP) reporting and super funds regulated by the Australian Prudential Regulation Authority (APRA).

Under Superannuation Guarantee (SG) laws, employers are required to contribute at least 9.5% of workers’ earnings to a superannuation fund or retirement savings account.

The ATO has revealed details of a recent pilot where it contacted 85 employers who hadn’t paid their superannuation guarantee, prompting about half to pay outstanding amounts, amid ongoing efforts to crack down on firms not complying with the law.

“We intend to expand this approach to those employers who haven’t paid SG to their employees within 30 days after the end of the reporting quarter,” O’Halloran said.

Proactive approach

While the tax office says it recognises most employers are playing by the rules, the approach highlights an ongoing shift in enforcement activity, with new data sources enabling regulators to be much more proactive about ensuring compliance with the law.

Until this year, the tax office only received annual reports from APRA-regulated funds, but now receives progressive quarterly information about Superannuation Guarantee payments.

According to reports sent to the tax office in early-July, 637,000 employers paid about $11.3 million super fund members a total $71 billion in super contributions in 2018-19.

Nearly all (95%) of quarterly super payments were reported with an employer’s ABN attached, which means the ATO is able to identify how specific businesses are tracking with their obligations.

“Our next steps will be to incrementally integrate data analytics tools into our engagement and treatment strategies to address SG non-payment,” O’Halloran said.

Data provided by super funds will feed into a combined enforcement approach with STP reporting information, enabling the ATO to conduct “health checks” with businesses not paying super properly.

“Where payment is late or underpaid, we’ll be able to identify it and engage the employer quickly to recover any SG charge and address the underlying behaviour,” O’Halloran said.

Employers with a track record of issues complying with super obligations will be targeted with “preventative messaging” under tax office plans, which will also extend to pay-as-you-go withholding (PAYGW) obligations.

“This visibility and our ability to proactively engage with employers who don’t meet their obligations means we can also better ensure a level playing field for business, particularly small business,” O’Halloran said.

Accountant Lisa Greig of Perigee Advisers says it will be important for the ATO to conduct its proactive compliance activities in a responsible manner, amid concern some businesses could get the wrong idea.

“It’s about closing the loop now that APRA-regulated super funds are reporting to the ATO more often,” Grieg tells SmartCompany.

“Businesses are still quite frightened by the ATO, they might think they’re doing something wrong when they aren’t.”

Transitioning superannuation

O’Halloran said the ATO has already identified instances where workers might not be getting paid the right amount of super much quicker than previously possible.

“We’ve already identified examples, in near-real-time, where employers have incorrectly reported or paid PAYGW liabilities. This wasn’t possible before,” a tax office representative said at the ASFA event.

“We’re focused on using STP data to make it easier for employers to comply, and harder not to comply, with their PAYGW obligations. STP gives employers visibility around their cashflow, enabling them to make decisions that can help drive their business forward.”

As a change to the way employers report tax and super information to the ATO, real-time payroll reporting also has the potential to streamline compliance obligations for businesses.

This includes being freed of a requirement to report payment summary information at the end of the financial year, or provide pay summaries to staff.

“There’ll also be less room for salary payment errors,” O’Halloran said.

STP reporting doubles

News of the ‘nudge program’ comes as the ATO reveals the number of small businesses reporting under STP has more than doubled since the dawn of the new financial year.

Figures cited yesterday by O’Halloran reveal “over 243,000” small businesses are now in the STP system ⁠— up from 107,000 on June 31.

Businesses have been signing up for STP reporting at an average rate of about 2,600 per day since June 31 ⁠— up from the 1,600 a day cited by the tax office in June ⁠— suggesting outreach efforts and a looming secondary deadline are finding purchase among business owners.

However, the figure is only a third (33%) of the 730,000 or so small businesses the ATO estimated it would need to onboard onto the scheme last October, in what has been described as the biggest tax compliance undertaking since the GST.

There are about 40 days to go before a September 30 deadline for firms with fewer than 19 workers comes into effect, by which point, businesses will need to either be reporting under STP or have applied for a deferral/exemption to avoid the risk of a followup from the tax office.

Wondering what single touch payroll means for you? Check out our explainer.

There are quarterly reporting deferrals available for micro-employers (one-four workers) and other exemptions available for some firms, depending on their circumstances, but the ATO has not revealed how many businesses have applied for special consideration so far.

At current rates, about another 100,000 or so firms will sign onto STP by September 30, although it’s anticipated a growing number of firms will jump onboard as the deadline approaches.

Still a ways to go on STP

Micro-employers, particularly those without existing digital payroll software, face the largest barriers to becoming STP compliant, while firms in regional areas have been a focus for ATO marketing efforts in recent months, amid concern awareness in those areas has been low.

Several surveys conducted by payroll providers earlier this year indicated a large proportion of businesses either hadn’t heard of STP or didn’t believe they could be compliant before September 30, raising concern many businesses could fall through the cracks.

Mark Molesworth, a tax expert and partner at BDO, says the number of businesses still not reporting under STP may be an indication many firms are struggling with switching to cloud-based accounting software.

“The nature of STPR is that it is real-time digital reporting to the ATO, so the system from which the data is coming needs to be cloud-based,” Molesworth tells SmartCompany.

“It could be that some businesses are currently struggling with switching from desktop to cloud-based software.”

Molesworth says the awareness campaign around STP reporting has not been as broad-reaching as others, such as government spending on spruiking efforts to ensure multinationals pay their fair share of tax.

“The government spent money on advertising its credentials in making multinational entities pay their ‘fair share’ of tax in Australia,” he says.

“The question that has to be asked is why there has been no similarly broad-reaching campaign to inform the community about STPR when it is of more immediate relevance to the majority of community members — given there are over two million small businesses in Australia.”

Grieg says the tax office has been helping agents in recent weeks by engaging with them about the STP reporting status of their clients.

“Most of my clients will manage the transition through some sort of concession,” she says.

Tax office efforts to raise awareness about STP reporting have been hamstrung by government decisions over the last 18 months, with legislation to extend the reporting regime to firms with fewer than 19 workers not passing until earlier this year, despite being introduced into parliament early last year.

Then, due to the timing of the federal election, the ATO was placed into caretaker mode, and was unable to ramp its nationwide awareness campaign into full gear until early-June.

There will be no penalties for STP non-compliance in the first 12 months, the ATO has said, but the tax office will follow up with firms who haven’t put a plan into place by September 30.

The ATO is applying a soft-touch compliance approach to STP reporting as it learns to understand the influx of payroll data it is now receiving — now covering about 78% of the Australian workforce, or about 9.4 million employees.