Four things happen if you don't pay superannuation on time...none of them good.
Being consistently late with super is a sure fire sign your business is in a bit of trouble. Most of the time it's cash flow that causes it, other times its just poor internal processes. Both of which aren't making your life any easier.
So what happens if you don't pay super on time?
1. You lose the income tax deduction
You read that right. Superannuation paid late is NOT tax deductible to the employer.
This is one of those things your tax accountant does when preparing the tax return. Any late paid super is not counted as a tax deduction, so you end up paying more tax because you didn’t pay it on time.
In fact, I’d suggest that paying your super on time is one of the simplest ways to minimise your tax.
For example, lets say your wages for the year $300,000. There’s $30,000 of super you need to pay on that.
If you don’t pay this on time (whether 1 day late or 100), then you’re denied the tax deduction. On $30,000 at the company tax rate of 25%, that’s $7,500 MORE TAX you pay than if you had paid it on time.
For $7,500 you'd get a nice Christmas holiday, your accounting fees paid for the year or the start of a savings plan.
Think of it this way. Paying super late adds 25% to the cost. Ouch. That's an expensive working capital facility isn't it.
2. You need to tell the ATO
When super is paid late – even by 1 day -you need to prepare and submit a Superannuation Guarantee Charge form (SGC) within 1 month of the due date.
For example, the July to September quarter super is due at the fund by 28 October. If you don’t pay by this date, then you need to submit the SGC form to the ATO by 28 November.
This form notifies the ATO which quarter you were late, for which employee, and by how much. If you have actually paid the super (but it was after the due date) you tell them when you paid it and to which fund.
And for just a little bit more of complexity, the superannuation is now calculated on the total income you paid the employee rather than ordinary times earnings.
That might sound a bit obscure, but somethings like overtime/bonuses etc aren’t ordinary times earnings and you wouldn’t normally pay super on them. But where the super is late, you now need to calculate super on everything you’ve paid the employee – this can jack up the amount of super by quite a bit in some cases.
3. You pay interest and fees
When you lodge the SGC form, you are required to pay nominal interest to compensate your employees for the time their super money wasn’t being invested. The rate of nominal interest is 10%.
You also need to pay a $20 fee to the ATO for each employee per quarter. That doesn’t sound like much, but if you have 25 casuals that you pay $500 each month for a few shifts. And you’re 6 months behind in super, that becomes an extra $1,000. The more quarters you are overdue, this quickly ramps up into a meaningful amount of cash.
Once you’ve completed the SGC form it’ll add up the total amount you need to pay. You then need to pay this amount to the ATO.
Failure to pay this makes you automatically personally liable for the outstanding amount.
4. You can become personally liable
All the legal structures in the world can’t save you if you don’t follow the rules.
The ATO has the power to “pierce the corporate veil” through the use of director penalty notices.
So the worst thing you can do is stick your head in the sand, not pay super and then not lodge the SGC forms. You’re just opening the drawbridge, draining the moat and welcoming the feds into the castle to raid your vault.
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A lot of businesses think, they don’t have the money to pay it so we just won’t lodge it and then the ATO won’t know and it will buy us some time. This is not the way to go.
Even if you can’t pay, you need to lodge the forms – this goes for BAS as well. By lodging and not paying yes you will have a debt with the ATO. But it gives you a small window of opportunity to limit your personal liabilities under director penalty notices.
Not paying your super on time is serious business. This isn't like a supplier where you push out on the due date (which I also don't agree with) and get away with it.
Superannuation is employees money. They've done the work, they deserve to get paid, so if you can't pay it you are essentially skimming their pay packets.
I realise that most of the time its because you simply don't have the cash to pay it - but this should have alarm bells ringing all over the place. If you can't pay super, BAS or tax on time and in full - your business has a cash flow problem that is not going magically resolve itself.
You need to do something now to stop the spiral of doom.
I've seen it countless times before. One late payment becomes two, two becomes four, and then the on the house is on the line because they thought they could "trade out of it".
This a fairy tale business owners tell themselves.
That suddenly without changing anything they will start making higher profit margins, increase cash flow and pay off expenses from a prior period with current period cash flow whilst also paying current period expenses as well.
That's not going to happen.
If you're late with super. Your business needs to change. Quick.
Seek help, seek it now.