The author of a major report into the problem of unpaid superannuation has welcomed a move by the Turnbull government to close a glaring loophole, but says much more needs to be done to improve compliance.
In July, Minister for Revenue and Financial Services Kelly O’Dwyer released a draft bill, slated to be tabled as legislation into Parliament later this year, to fix a loophole in the Superannuation Act that allows unscrupulous bosses to count employees’ own voluntary salary sacrifice contributions towards the Superannuation Guarantee (SG) payments they are obligated to make as an employer.
The move follows the Minister receiving advice from an inter-agency working group on the issue of unpaid super that she set up in December 2016. The working group included senior representatives from the Australian Taxation Office (ATO), Treasury, the Department of Employment and financial regulators the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).
Minister O’Dwyer established the working group in the wake of a report, titled “Overdue: Time For Action On Unpaid Super”, produced jointly by Industry Super Australia and Cbus Super. That report estimated that approximately one third of all employees are being short-changed on their entitlements under the super guarantee. This means on average an employee loses $1489 or almost 4 months of superannuation contributions a year.
Lead author of the report Phil Gallagher, who is a former federal Treasury director currently employed as a special adviser to Industry Super Australia, welcomed the government’s decision to take action on closing the salary sacrifice loophole, but urged further action is still required.
More action required
Two of the key recommendations in the report that Gallagher would like to see the government implement are increasing the frequency of superannuation guarantee payments to align with wage and salary cycles, and making the single touch payroll system mandatory for all employers.
Single touch payroll, a system that enables a real-time exchange of data between employers and the ATO, is set to become mandatory for businesses with 20 employees or more from July 1, 2018.
A spokesperson for Minister O’Dwyer told Investment Magazine that the ATO has already adopted one of the group’s key outcomes, which is to “increase its focus on Superannuation Guarantee compliance and to increase the number of ATO-initiated audit cases rather than rely on complaints to initiate audits”.
When asked if the government is willing to consider other recommendations in the report, the Minister’s spokesperson said they were noted and would be “put to the Senate Economic References Committee Inquiry into Unpaid Super”. However, any changes will need to establish a balance between “providing the most efficacious improvements to compliance against the costs and burdens on employers, the super industry and government”.
Gallagher’s report found that unpaid super mostly affects young employees, low income earners and those working in the construction, hospitality and cleaning industries.
Industry Super Australia director of public affairs Matt Linden said high levels of unpaid super have been endemic for a very long time and if the shortfall continues to rise without proper and prompt action by the government, the industry and those who rely on it will be disadvantaged when planning retirement.
He said the government should view the data compiled by Gallagher on unpaid super as a wake-up call as it could be seen as an indicator for higher-risk businesses, who are not only ripping-off their employees but also not paying their other taxes, such as PAYG and corporate tax.