There is much confusion among tax practitioners and their clients regarding the proposed Superannuation Guarantee (SG) Amnesty, which is intended to run for 12 months from 24 May 2018 to 23 May 2019.
However, the SG Amnesty measures are not legislated yet (the Bill is currently before the Senate and may still be defeated) … more than 3 months since it was announced and nearly one-third of the way through the 12-month Amnesty period.
This article will refer to the proposed measures contained in Schedule 1 to the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 as ‘the new law’.
The ATO advises on their website: ‘Until the legislation is enacted, we are required to apply the existing law.’
This has led to practitioners trying to decide whether they should advise their clients to make disclosures to the ATO, even though the Amnesty is not yet law, mindful of NOCLAR (Non-compliance with Laws and Regulations) which provides a framework for all professional accountants on how best to act in the public interest when they become aware of non-compliance or suspected non-compliance with laws and regulations.
Should I disclose now or hold off?
Many practitioners are wondering whether they should advise their clients to hold off until the Amnesty becomes law. It is important to understand that the current law applies until the new law is passed (and if passed, it will have retrospective effect from 24 May 2018).
If an employer makes a voluntary disclosure now
If an employer makes a voluntary disclosure to the ATO now (i.e. before the new law is passed), and the new law is:
- passed — then they will be afforded the protection under the Amnesty; or
- not passed — the ATO has advised that the current law applies and:
- any contributions and payments made under the Amnesty will not be tax-deductible;
- any self-assessments that anticipated the new law will need to be amended to include the ($20 per employee per quarter) administration component, and employers will be required to pay the administration component; and
- Part 7 penalties will be imposed and may be remitted in accordance with the ATO’s existing remission policies. In determining any remission of the penalty, the ATO will take into account the employer’s ability to access the Amnesty.
If the new law does not pass, an employer who discloses now would surely receive a better outcome from the ATO regarding penalties than if they do not voluntarily disclose and the ATO later determines that the employer has an SG shortfall from an earlier quarter. While the Commissioner must consider the particular circumstances of each case, generally, a minimum penalty of 50 per cent of the SG charge payable will be applied to employers who could have come forward during the Amnesty but did not.
If an employer does not make a voluntary disclosure now
If an employer does not make a voluntary disclosure to the ATO now (i.e. before the new law is passed), and the new law is:
- passed — then they will be afforded the protection under the Amnesty if they disclose and pay within the Amnesty period; or
- not passed — the current law applies (see above).
Further risks of not disclosing now
Unfortunately, announced tax and super policy doesn’t always eventuate to law; or if it does, it may be altered before it becomes law or there may be a long delay before it becomes law.
What is not in doubt regarding an employer with an SG shortfall from an earlier quarter is that they have not complied with the current law as they have always had an obligation to report this to the ATO and pay the SG charge.
Section 10 in Part B of Amendments to APES 110 Code of Ethics for Professional Accountants due to revisions to IESBA’s Code of Ethics for Professional Accountants sets out how members of professional bodies (comprising Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants) — i.e. professional accountants — should respond to NOCLAR.
Section 225.5 of APES 110 sets out the approach to be taken by professional accountants who encounter or are made aware of non-compliance or suspected non-compliance with
- laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the client’s financial statements; and
- other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the client’s financial statements, but compliance with which may be fundamental to the operating aspects of the client’s business, to its ability to continue its business, or to avoid material penalties.
ARE MEMBERS REQUIRED TO DISCLOSE NOCLAR TO AN APPROPRIATE AUTHORITY?
NOCLAR does not impose an obligation to members to disclose a non-compliance, or suspected non-compliance to an authority, when there is no legal obligation to do so.
However, members must comply with the relevant NOCLAR requirements and consider whether disclosure to an appropriate authority is an appropriate course of action in the circumstances. These vary depending on the role and specific characteristics of each case, but there are requirements for members to respond to NOCLAR and not turn a blind eye.
If a member decides that disclosure of NOCLAR to an appropriate authority is the right course of action in the circumstances, then such a disclosure will not be considered a breach of confidentiality.
Members are required to act in good faith and exercise caution.
Members cannot disclose NOCLAR to an appropriate authority if doing so would be contrary to law or regulation.
NOCLAR doesn’t require professional accountants to disclose non-compliance with the law to the authorities. Under NOCLAR, professional accountants must determine whether disclosure of the non-compliance or suspected non-compliance to an appropriate authority is an appropriate course of action in the circumstances. It requires professional judgment.
NOCLAR and the SG Amnesty
The problem is if the employer hasn’t met their SG obligations in a previous quarter(s) or reported this to the ATO by way of lodging an SG statement by the 28th day of the second month following the end of the quarter for which the employer had an SG obligation, there is already non-compliance with the law that could lead to material penalties.
NOCLAR applies only to current law, not proposed law, so delaying making a disclosure to the ATO under the Amnesty until the new law is passed on the basis that the employer was waiting until they had certainty doesn’t relieve the professional accountant from having to consider whether a NOCLAR disclosure based on the employer’s non-compliance with the current law is appropriate.
It is an interesting question whether, from a NOCLAR point of view, an employer’s failure to pay the SG shortfall and/or report that shortfall to the ATO would have a material impact on their financial statements or give rise to material penalties. Is a failure to pay the shortfall more serious than failing to report it to the ATO? Could it be argued that not reporting the shortfall to the ATO may not necessarily have a material impact and may not be reportable, whereas, the non-payment of the shortfall is likely to have a material impact?
What about the Tax Agent Services Act 2009?
The Code of Professional Conduct in s. 30-10 of the Tax Agent Services Act 2009 imposes the following relevant obligations on registered tax agents:
1. You must act honestly and with integrity.
4. You must act lawfully in the best interests of your client.
9. You must take reasonable care in ascertaining the state of those affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of a client.
10. You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.
11. You must not knowingly obstruct the proper administration of the taxation laws.
12. You must advise your client of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services you provide.
The obligations imposed by the Code of Professional Conduct are another consideration of tax agents who are contemplating advising their clients to defer making any disclosures under the Amnesty until the new law is passed. Would such advice fall foul of the Code of Professional Conduct? On one hand, discouraging clients to utilise an Amnesty until it is law could be considered prudent advice; on the other hand, the fact that they are contemplating using the Amnesty means that the client has not complied with the current law, and disregarding that in the interim could result in the tax agent breaching a number of aspects of the Code of Professional Conduct.
Section 30-10(6) of the Tax Agent Services Act 2009 provides that:
Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party without your client’s permission.
NOCLAR is an ethical standard but it does not impose a legal duty on registered tax agents within the meaning of s. 30-10(6) to disclose a client’s non-compliance with the SG laws. Accordingly, a registered tax agent will not be able to disclose non-compliance with the SG laws without breaching s. 30-10(6). However, a professional accountant who is not a registered tax agent will still need to consider their obligations under NOCLAR.
What about directors’ liabilities?
To avoid director penalties, the company needs to pay its SG to employees’ superannuation funds by the due date or, if that doesn’t occur, lodge an SG statement and pay the resulting SG charge liability to the ATO.
If a company fails to meet its SG charge liability in full by the due date, each director of the company will become personally liable for director penalties equal to the unpaid amounts. (The same rules apply to PAYG withholding but that is not relevant to this article.)
Obligation reported within three months
If the unpaid amount of the SG charge obligation is reported within three months of the original due date (or, in the case of new directors, within three months after the date of their appointment), the penalty can be remitted by one of the following:
- paying the debt;
- appointing an administrator under ss. 436A, 436B or 436C of the Corporations Act 2001; or
- the company begins to be wound up (within the meaning of the Corporations Act 2001).
Obligation reported outside three months or remains unreported
If the unpaid amount of the SG charge obligation is reported more than three months after the due date (or, in the case of new directors, more than three months after the date of their appointment), the only way to remit the penalty is to pay the debt.
For any portion of the underlying liability that is reported outside of three months or remains unreported, the director penalty for that portion can only be remitted by payment by the director.
Proposed removal of 3-month rule
Schedule 5 to the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, which is currently before the Senate, proposes to remove the three-month period before a director penalty is ‘locked down’ and cannot be remitted if a company is placed into voluntary administration or insolvency. This change is restricted to SG charges and estimates of SG charge.
So what should I do?
In this environment (e.g. media coverage on the Amnesty, employers may be discussing calculations with their employees etc.) there is an increased chance that an employee will become aware of their employer’s non-compliance and approach the ATO directly. Importantly, if an employee does a
‘dob-in’, a subsequent ATO review or audit of the employer will render the employer ineligible for the Amnesty.
The employer will always be better off disclosing than not disclosing because they will either:
- get a better deal on penalties if the new law doesn’t pass (although the amount won’t be deductible, but that is the current law anyway); or
- be protected under the Amnesty if it does pass.
Ultimately, employers need to decide whether to disclose now, and they need to understand the implications of their decision if they don’t; and professional accountants need to be aware of the NOCLAR-related consequences of their clients’ delayed disclosure or non-disclosure.