Most business owners would likely understand that failing to pay amounts due to the ATO can be the start of a rocky road to ruin. However there appear to be some, along with their advisors, who routinely underestimate the level of risk associated with ignoring the revenue Czars – and now the focus has shifted to superannuation guarantee entitlements.
A disturbing element of the recent industry-led report into unpaid superannuation, which placed the value of unpaid super in 2013-14 at a staggering $3.6 billion, is that employers appear either ignorant of their obligations, or are consciously using their employees as defacto lenders to support the cash flow of their businesses.
Either way, neither is a sustainable long-term strategy and clearly noncompliance with superannuation laws now has serious implications.
In mid-2012, the ATO acquired the ability to attribute direct liability, not only for unpaid PAYG Withholding taxes but importantly also superannuation, to directors of companies who fail to pay. Debts not notified to the ATO (for superannuation amounts, by way of a Superannuation Guarantee Charge Statement – SGCS) that are older than three months are attributed personally to directors.
Most surprising of all though is recent anecdotal evidence that suggests there are still accountants in practice who remain ignorant of the risks in this area (wilfully or otherwise). A matter recently referred to me for advice arrived under the following context:
- The company had failed to lodge BAS’ and pay superannuation for over two years (without any SGCS);
- The estimated liability for PAYG(W) and super exceeded $200,000;
- The accountant had suggested liquidation as a means of ‘avoiding the liability to the ATO as they won’t chase it’; and
- The accountant had a liquidator in mind that “would do the job cheap’ and may not fully investigate the director’s conduct
Notwithstanding the obvious issues with the ‘friendly’ liquidator, the accountant seemed oblivious to the impending personal liability that would immediately attach to the director, once the outstanding BAS and super amounts were lodged. Critically, it did not matter whether those amounts were quantified before or after the liquidation – the die had been cast and, without payment in full, the director would likely be liable for the entire sum.
The practice of using the ATO or employees as ‘lender of last resort’ has a limited life-span and employers or advisors with concerns must take prompt advice. Otherwise, the outcome may be not so super…