The SGC Amnesty & Director Penalty Notices – A double edged sword

Key takeaway  

• Be mindful of the disqualification criteria of the Superannuation Guarantee Charge (“SGC”) Amnesty and exposure to Director Penalty Notice (“DPN”) liabilities  

The COVID-19 related events of 2020 have meant that the much awaited SGC Amnesty pretty much snuck under the radar until its recent conclusion on 7 September 2020. Some anecdotal feedback from our network has indicated that perhaps an extension of the amnesty lodgement window may have been beneficial given the distractions posed by the pandemic, however that ship has now sailed.

From your clients’ perspective, you will all be aware of the key advantages of making use of the amnesty – the key benefits being:

• The ability to claim a tax deduction for SGC amounts and late payment offsets, on the basis that the SGC liability is paid by 7 September 2020
• Exemption from the substantial Part 7 penalties
• No administration fee component

Most clients will access the amnesty to pay the debts in full contemporaneously with the lodgement process. But other clients may need to pay the debt over time. The ATO was open to payment plan arrangements (on the basis that they were entered into on or before 7 September 2020); however, clients who apply for the amnesty after 7 September 2020 (or default on a payment plan) are then exposed to being disqualified from the amnesty regime.    

The key point of this article therefore is to highlight the amnesty disqualification criteria and the cross-over issues with the DPN regime.

The issue is simple for your clients – don’t pay or default on the SGC payment plan with the ATO, and the amnesty is annulled.

Apart from the loss of the primary benefits discussed above, this then opens the door to DPN liabilities – most of which will be lock-down in nature due to the period of time to which the amnesty relates.    

Example:

 The director of ABC Pty Ltd recently downsized the business following years of rapid growth, but unprofitable trading. During the busy times, the company fell behind with its taxation lodgements and payments, and did not pay super on time or report the employee’s SGC to the ATO at all.

 After a few years of fighting the tide, the director got on top of the ATO compliance and addressed the majority of the GST and PAYG-w debts. The director also cut back on staff and simplified the business.  

 The director made use of the SGC Amnesty and arranged to lodge all of the SGC statements with the ATO before 7 September 2020. When the director approached the ATO to discuss a payment plan, the ATO was not prepared to negotiate terms to pay the debt over time, and the down downsized company could not pay the debt all at once.  

 When the company failed to pay the debt before 7 September 2020, and with no payment plan in place, the amnesty was invalidated and the director became personally exposed to the SGC amounts in the form of a lock-down DPN liability (i.e. placing the company into voluntary administration or liquidation upon receipt of a DPN in the future will not mitigate the personal exposure).   

So, in conclusion, be wary – waving the white flag by accessing the SGC Amnesty may be beneficial, but it comes with risks if a payment plan is defaulted on, or there is not one in place at all.