House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)

Chapter 1 - Directions and penalties in relation to superannuation guarantee charge

Outline of chapter

1.1 Schedule 1 amends the TAA to allow the Commissioner to issue directions to employers who fail to comply with statutory obligations under the SGAA or an obligation under the TAA as it relates to the SGAA (superannuation guarantee obligations).

1.2 The Commissioner can direct an employer to pay unpaid and overdue superannuation guarantee charge liabilities. This is to address recalcitrant employers who intentionally and repeatedly disregard their obligations and continuously fail to pay their superannuation liabilities.

1.3 The Commissioner can also direct employers to undertake an approved course relating to their superannuation guarantee obligations where the Commissioner reasonably believes there has been a failure by an employer to comply with those obligations.

1.4 The purpose of these amendments is to enhance compliance with superannuation guarantee by employers.

1.5 All legislative references in this Chapter are to the TAA unless otherwise stated.

Context of amendments

1.6 The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.

1.7 In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.

1.8 These amendments are one of several measures announced as part of the Government's package of reforms to strengthen compliance with superannuation guarantee obligations by employers. The amendments are based on recommendation 6 contained in the Superannuation Guarantee Cross-Agency Working Group's report.

1.9 The SGAA sets out the circumstances in which an employer is liable to the superannuation guarantee charge and the obligations they have in respect of the charge. There are no provisions in the SGAA that place an obligation on an employer to make contributions on behalf of their employees.

1.10 The superannuation guarantee rules are designed to ensure that employees have at least a minimum level of superannuation support through contributions provided by their employer in respect of their employment. The rules achieve this by imposing a tax (the superannuation guarantee charge) on employers who fail to contribute an amount at least equivalent to the minimum percentage of their employee's ordinary time earnings into superannuation. Employers can reduce the amount of superannuation guarantee charge payable by making contributions to their employee's superannuation fund of choice before the quarterly due date (the 28th day after the end of the quarter). If the minimum level of superannuation contribution is made in respect of the individual employee, then the superannuation guarantee charge is reduced to nil.

1.11 The superannuation guarantee charge is a tax related liability under Subdivision 255-A in Schedule 1, and once due and payable, becomes a debt due to the Commonwealth. Part 4-15 in Schedule 1 deals with the collection and recovery of tax related liabilities.

1.12 Currently, the failure to comply with a superannuation guarantee obligation under the SGAA can result in financial penalties for the employer. An employer who fails to lodge the superannuation guarantee statement on time is liable to pay additional superannuation guarantee charge (known as the 'Part 7 penalty') which can be up to 200 percent of the amount of the underlying superannuation guarantee charge. General interest charge is also imposed for late payments once a superannuation guarantee assessment has been made.

1.13 The TAA also imposes administrative penalties (for example in relation to false and misleading statements in relation to a superannuation guarantee statement under Division 284 in Schedule 1) and contains offences for failing to comply with tax related obligations.

1.14 An employer's failure to comply with their superannuation guarantee obligations can occur for a variety of reasons. In particular, smaller employers may not be fully aware of their superannuation guarantee obligations under the SGAA. Employers may also misclassify payments which results in an underpayment of superannuation guarantee.

1.15 In other cases, there are recalcitrant employers who have intentionally failed to provide their employees with their superannuation guarantee entitlements and repeatedly disregarded their obligations and continuously failed to pay their superannuation liabilities.

Summary of new law

1.16 The amendments empower the Commissioner to issue directions to employers to undertake specific actions where the Commissioner is satisfied that there has been a failure to comply with an obligation or a failure to pay a charge. These directions are designed to enhance employer compliance with their superannuation guarantee obligations.

1.17 The key features of the direction to pay superannuation guarantee charge are as follows:

•

The Commissioner can issue a direction to an employer if the employer has failed to pay an amount of superannuation guarantee charge, or an estimate of superannuation guarantee charge, for a quarter.

•

The employer must ensure that the amount of the unpaid liability is paid within the period specified in the direction.

•

Failure to comply with the direction can result in criminal penalties.

1.18 The key features of the education direction are as follows:

•

The Commissioner can issue a direction to an employer if the Commissioner reasonably believes the employer has failed to comply with a superannuation obligation.

•

The employer who has received the direction must complete the approved course, or for non-individual employers, ensure an individual who participates in the decision making of the business completes the course.

•

The employer must provide proof of completion to the Commissioner.

•

Failure to comply with the direction can result in administrative and/or criminal penalties.

Comparison of key features of new law and current law

Detailed explanation of new law

1.19 The amendments insert a new Subdivision 265-C in Schedule 1 which provides the Commissioner with the power to issue a direction to an entity to pay an unpaid and overdue superannuation guarantee liability.

1.20 The amendments also insert a new Division 384 in Schedule 1 which provides the Commissioner with the power to issue a direction to an employer to complete an approved course. Such directions can be issued where the Commissioner reasonably believes that there has been a failure by an employer to comply with a superannuation guarantee obligation.

Direction to pay superannuation guarantee charge

1.21 The Commissioner can issue a written direction to an employer requiring that it pay an amount of superannuation guarantee charge that is payable by the employer under the SGAA or an amount of an estimate of the superannuation guarantee charge that is in force under Division 268 in Schedule 1. [Schedule 1, item 1, subsection 265-90(1) in Schedule 1]

1.22 An amount of superannuation guarantee charge becomes payable where:

•

A superannuation guarantee statement is lodged;

•

The Commissioner makes a default assessment of superannuation guarantee charge; or

•

The Commissioner amends an assessment of superannuation guarantee charge.

1.23 As the liabilities to which this direction relates must already exist before a direction to pay can be issued, the direction operates in conjunction with the existing collection and recovery rules that apply in respect of tax related liabilities under the TAA. The extension of the direction to estimates that are in force under Division 268 in Schedule 1 reflects that the liability to the estimate, although a separate liability, is imposed as a method for collecting unpaid superannuation guarantee charge. There can only be one estimate that is in force at one time in respect of a liability to superannuation guarantee charge.

1.24 The purpose of the direction is to provide the Commissioner with an additional tool to enforce compliance with the existing obligations to pay amounts in respect of the superannuation guarantee.

Requirements of the direction

1.25 If the Commissioner decides to give a direction to an employer to pay an amount of superannuation guarantee charge or a related estimate of the charge, the direction must contain a number of particulars. These particulars are required for employers who receive a direction to be made fully aware their rights and obligations in respect of the direction, as well as the consequences that apply if they do not comply with the direction.

1.26 The direction must set out:

•

The amount that the employer is required to pay and the quarter to which the amount relates. [Schedule 1, item 1, paragraphs 265-90(3)(a) and (b) in Schedule 1]

•

The consequences of failing to comply with the direction and explain the review rights available to the employer. [Schedule 1, item 1, paragraphs 265-90(3)(d) and (e) in Schedule 1]

•

Specify the period within which the employer must comply with the direction. This period must be at least 21 days after the day that the direction is given. [Schedule 1, item 1, paragraph 265-90(3)(c) in Schedule 1]

1.27 This minimum period provides a minimum amount of time for an employer to comply with the direction. However, the Commissioner is free to specify a longer period of time in the direction where it is appropriate to do so.

1.28 A direction can relate to part of a liability to pay an amount of superannuation guarantee charge or a part of a liability to pay an estimate of the charge. If the Commissioner has issued a direction for a specified amount of unpaid superannuation guarantee charge for a particular quarter but later the quantum of the liability is found to have increased, the Commissioner can either:

•

revoke the original direction and reissue a new direction for the full amount of the liability; or

•

issue a separate direction for the remaining balance that is still outstanding and not referrable to the original direction.

Offence

1.29 An employer commits an offence if they are given a direction to pay the amount of an outstanding liability and the amount of the liability is not discharged within the period specified in the direction. The maximum penalty for the offence is 50 penalty units, imprisonment for 12 months, or both. [Schedule 1, item 1, subsection 265-95(1) in Schedule 1]

1.30 This is a separate offence provision that is distinct from the offence provisions provided in section 8C.

1.31 While it is the employer that will commit an offence if the relevant liability is not discharged within the necessary period, the employer can avoid committing an offence if another entity discharges the liability on their behalf. This could occur where a third party pays the amount of the outstanding liability to the Commissioner at the request or direction of the employer.

1.32 Applying criminal sanctions to failures to comply with a direction to pay an outstanding liability in respect of superannuation guarantee charge reflects that, unlike other debts owed to the Commonwealth, amounts of superannuation guarantee charge are paid to the Commissioner and then distributed to the superannuation funds of employees who did not receive the minimum level of contributions from their employer. The additional penalties that can apply through this new direction provide additional incentives to employers to ensure that they are fully compliant with their existing obligations under the SGAA and related obligations under the TAA.

1.33 The penalties are also subject to section 4D of the Crimes Act 1914, meaning that the specified amounts are the maximum penalties that can be imposed.

1.34 A failure to comply with the direction is an offence of strict liability. [Schedule 1, item 1, subsection 265-95(2) in Schedule 1]

1.35 This means that it is not necessary to establish fault if a person has failed to comply with a direction to pay an outstanding amount. Applying strict liability is appropriate because the sole reason for the direction being issued is to ensure that the amount of the existing outstanding liability is actually discharged.

1.36 The offence of strict liability and the amount of the related penalty is consistent with the existing offences that apply to other failures to comply with taxation obligations (see for example, section 8C creates an offence of absolute liability for failures to comply with requirements under the taxation law).

1.37 Although the offence is an offence of strict liability, a defence is available to ensure that individuals do not commit an offence where they have not complied with the direction in appropriate circumstances. This defence is explained in further detail below and applies in conjunction with the general defence to strict liability offences for honest mistakes of fact under section 9.2 of the Criminal Code contained in Schedule 1 to the Criminal Code Act 1995.

1.38 The offence has been imposed through a directions power framework as an alternative to applying criminal sanctions directly to the failure to pay the liabilities in respect of superannuation guarantee. This approach narrows the scope of employers that are potentially subject to criminal sanctions for non-payment by requiring that the Commissioner take into account all relevant facts and circumstances in working out whether to issue a direction to a particular employer.

1.39 It is intended that the Commissioner only issue directions in relation to serious contraventions of the obligations to pay superannuation guarantee related liabilities by employers whose actions are consistent with an ongoing and intentional disregard of those obligations.

1.40 To achieve this outcome, the Commissioner is required to consider the following matters in deciding whether to give a direction to an employer:

•

The employer's history of compliance with obligations to pay liabilities related to the superannuation guarantee charge;

•

The employer's history of compliance with other obligations under the taxation law;

•

Whether the amount of the unpaid liability is substantial, having regard to the size and nature of the employer's business;

•

Any steps that the employer had taken to discharge the unpaid liability or to dispute that it exists; and

•

Any other matters that the Commissioner considers relevant.

[Schedule 1, item 1, subsection 265-90(2) in Schedule 1]

1.41 The list of matters provides an assessment of things for the Commissioner to consider. Each factor does not need to be present or present to a particular degree. While these factors must be taken into account, no single matter is wholly determinative of whether or not a determination may be issued.

1.42 Instead, the various matters provide guidance to the Commissioner about the circumstances in which a direction to pay can be issued. In this respect, the direction is intended to be issued to employers with a history of serious non-compliance, rather than those that inadvertently breach their obligations to pay the amounts that are relevant to the direction or that have minor or isolated breaches.

1.43 While a direction can only be issued in respect of amounts that become payable after 1 July 2018, an employer's history of compliance with other taxation and superannuation obligations prior to 1 July 2018 is relevant and can be taken into account.

Defence for reasonable steps

1.44 If the liability that is identified in a direction is not discharged within the required period, the employer that was issued with the direction will not commit an offence if they took all reasonable steps within the required period to both comply with the direction and to ensure that the original liability was discharged before the direction was given. [Schedule 1, item 1, subsection 265-95(3) in Schedule 1]

1.45 This defence ensures that employers are not subject to criminal charges for failing to comply with a direction to pay an outstanding liability where they are genuinely unable to do so.

1.46 To be covered by the defence, an employer must have taken all reasonable steps that were available to discharge the liability identified in the direction. These steps are not limited to the period from which the direction was issued to reflect the fact that the direction relates to an obligation that the employer had prior to the direction being issued. The employer has the burden of proof of establishing that the defence is available to them.

1.47 In determining whether all reasonable steps have been taken, it is also relevant to consider whether the employer took steps to avoid paying the liability, or otherwise manufactured a situation which resulted in the employer being unable to discharge its liabilities.

1.48 Actions of this kind would be inconsistent with an employer taking all reasonable steps to discharge their superannuation guarantee liabilities, irrespective of whether the actions occurred prior to the direction being issued.

1.49 The defence is framed as an offence-specific defence, which means that the evidential burden for proving that such reasonable steps were taken is placed on the employer. This approach is justified on the basis that the actions that an employer took to discharge its own liabilities are peculiarly within the knowledge of the defendant and would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

1.50 A similar approach is adopted in subsection 8C(1B), which provides that a failure to comply with a requirement under the taxation law does not amount to an offence under subsection 8C(1) to the extent that a person is not capable of complying with the relevant obligation. However, as the defence for this direction is also required to refer to the underlying obligation to discharge the liability to which the direction relates, the defence is framed in terms of discharging that liability (rather than simply complying with the direction).

Interaction with the insolvency and bankruptcy laws

1.51 The direction to pay superannuation guarantee charge or an estimate of superannuation guarantee charge does not create a separate liability and operates concurrently with the existing corporate insolvency and bankruptcy laws. The current insolvency regime as it applies to superannuation guarantee charge remains unchanged.

1.52 The direction to pay an outstanding liability is not intended to be issued to entities that are insolvent or on the brink of becoming insolvent. When issuing the direction, the Commissioner must take into account any other relevant factor and should take into account the entity's financial position and their capacity to pay the liability if the Commissioner has knowledge of this. The Commissioner should not issue these directions where the Commissioner is aware that the entity is insolvent or on the brink of insolvency.

1.53 The reasonable steps defence protects employers from criminal charges for failing to comply with a direction to pay where they are genuinely unable to do so.

1.54 A company may be faced with competing obligations of potentially committing an offence for failing to comply with the direction. At the same time, the director of the company may be faced with committing an offence of causing the company to become insolvent by incurring the debt arising from the direction to pay. If the directors of the company can show that they have taken all reasonable steps in relation to the direction to pay, such as evidence that they intend to place the company into liquidation, the defence of reasonable steps should apply to ensure that the company can rely on the defence in these types of situations.

1.55 Where a company who has paid the amount in the direction to discharge their obligation, but the amount is unwound as an unfair preference payment by a liquidator at a later time, the clawback of the payment in accordance with the preference rules would be an appropriate application of those rules. The company will also be able to rely on the defence of reasonable steps in respect of any potential issues with the direction to pay and potential offences. This is because the company has taken all reasonable steps in relation to complying with the direction by paying the unpaid amount specified. The unwinding of the payment would be circumstances that are outside of their control. In these situations the entity has taken all reasonable steps in relation to the liability.

Effect of underlying liability being reduced or ceasing to exist

1.56 If the liability to which a direction relates is reduced before the end of the period in which an employer is required to comply with the direction, the amount that an employer is required to pay under the direction is also reduced. In such circumstances, the amount of the reduction is equal to the reduction in the liability. [Schedule 1, item 1, subsection 265-105(1) in Schedule 1]

1.57 Additionally, a direction is taken to be revoked if the underlying liability ceases to exist before the end of the period in which the employer was required to comply. [Schedule 1, item 1, subsection 265-105(2) in Schedule 1]

1.58 These rules ensure that certain changes in respect of the underlying liability are automatically taken into account in working out an employer's obligations in respect of a direction. The relevant changes are all ones that are ultimately beneficial to the employer in the sense that they reduce the obligations that an employer has under a direction, or remove those obligations altogether.

1.59 Such changes could occur where the liability is partially discharged through payments made by the employer or another entity. A reduction to a liability, or its cessation, could also occur where the employer successfully objects to the underlying liability itself. In such cases, an employer is still required to pay any remaining amount of the liability.

1.60 The reduction or cessation must occur within the period in which the employer is required to comply with the direction. This means that an employer may still commit an offence for not complying with a direction even where the related liability is reduced or ceases to exist after the period in which they were required to comply. [Schedule 1, item 1, subsection 265-105(3) in Schedule 1]

1.61 This approach is consistent with the general position that an entity is required to discharge its liabilities within the necessary timeframe, even where they dispute the fact that the liability exists. Importantly, the amendments also provide for automatic extensions of the period in which an employer is required to comply where they object to the amount of the liability (these rules are explained in further detail below). The combination of these rules protects employers that legitimately dispute the amount of a liability while providing a clear incentive for employers to raise any such disputes in a timely manner.

Example 1.1 - when an assessment of superannuation guarantee charge liability decreases

Tony is a sole trader with a history of not making superannuation guarantee contributions for his employees.

On 22 June 2019, the Commissioner gives Tony a direction to pay his unpaid superannuation guarantee charge of $10,000 for the quarter ending 31 March 2019. The direction must be complied with by 31 July 2019.

On 30 June 2019, Tony requests that the Commissioner amend his superannuation guarantee charge assessment to reduce the $10,000 to $8,000 on the basis that the amount of salary used in calculating his superannuation guarantee charge was higher than the actual salary paid. The Commissioner amends Tony's assessment to $8,000.

As a result of the amendment, the amount Tony is required to pay under the direction is automatically reduced to $8,000. Tony must pay the $8,000 by 31 July 2019 to avoid committing an offence.

1.62 While these adjustment rules do not apply in respect of increases to an underlying liability, the Commissioner is still able to revoke a direction and issue a new direction in respect of such increases or alternatively, the Commissioner can issue a second direction for the additional amount payable. These rules are also explained below.

Automatic variations and revocations

1.63 The Commissioner may vary a direction to reduce the amount required to be paid by an employer or to extend the period within which the employer must comply. Such variations must be made before the end of the period in which the employer must comply with the original variation. [Schedule 1, item 1, paragraphs 265-100(1)(a) and (b) in Schedule 1]

1.64 This variation power can only be applied in ways that are beneficial to an employer. Such variations might be made where the Commissioner is provided with additional information about the employer's circumstances after a direction is given and considers that it is appropriate to reduce the amount of the underlying liability that must be paid in order for the employer to avoid criminal sanctions.

1.65 Similarly, the Commissioner might consider it appropriate to extend the period in which the employer is required to pay the amount specified in the direction based on a commitment by the employer to discharge the liability over a longer time period.

1.66 The Commissioner may also revoke a direction at any time before the end of the period in which an employer was required to comply with the direction. [Schedule 1, item 1, paragraph 265-100(1)(c) in Schedule 1]

1.67 This revocation power could be used where the Commissioner no longer considers it appropriate for an employer to be subject to the direction.

1.68 The Commissioner may also choose to revoke a direction where the amount of the liability originally identified in the direction was too low. Because a direction cannot be varied to increase the amount that must be paid by an employer in respect of a liability, the Commissioner would need to revoke the original direction and issue a new direction that identifies the higher amount (if it was appropriate to do so). Alternatively, the Commissioner could issue a second direction for the additional amount payable, while keeping the first direction on foot. This ensures that any increases to the obligations imposed on an employer under a direction are subject to the minimum timeframes and other procedural matters that must be adhered to. It also provides employers with clear objection rights in respect of any new directions that are issued.

Example 1.2 - when an assessment of superannuation guarantee charge liability increases

Nadia is a sole trader with a history of not making superannuation contributions for her employees.

On 9 July 2019, the Commissioner gives Nadia a direction to pay her unpaid superannuation guarantee charge of $9,000 for the quarter ending 31 March 2019. The direction must be complied with by 31 July 2019.

On 23 July 2019, the Commissioner amends Nadia's assessment to increase the superannuation guarantee charge to $12,000.

The Commissioner can either revoke the direction issued on 9 July 2019 and issue a new direction for the full $12,000, or alternatively, the Commissioner can leave the existing direction in place and choose to issue a second direction to pay the additional $3,000 with a minimum of 21 days from the day the second direction is issued in which Nadia must comply.

1.69 The amendments also clarify that a decision by the Commissioner to vary or revoke a direction to pay a superannuation guarantee liability does not affect the employer's liability to pay the liability. [Schedule 1, item 1, subsection 265-100(2) in Schedule 1]

1.70 Although the direction to pay an outstanding amount is based on the existence of an underlying liability, the decision to vary or revoke a direction could be justified by circumstances unrelated to the existence of the liability. Indeed, because the amendments include specific rules that apply where a liability is reduced or ceases to exist, there is no need for the Commissioner to make a decision to vary or revoke a direction in those circumstances.

Objection rights

1.71 An employer that is dissatisfied with a decision of the Commissioner to give a direction to pay an unpaid liability may object to the decision in the manner specified in Part IVC. Such objections must be made before the end of the period specified in the direction by the Commissioner. [Schedule 1, items 1 and 7, paragraph 14ZW(1)(bi) and section 265-110 in Schedule 1]

1.72 The requirement that the objection be made within the period specified in the determination ensures that employers raise any objections they have in a timely manner.

Extension of period to comply if taxation objection is made

1.73 The period in which an employer must comply with a direction is automatically extended if the employer objects to the direction being issued or objects to the taxation decision related to the underlying liability in the manner set out in Part IVC. [Schedule 1, item 1, paragraphs 265-115(1)(a) and (b) in Schedule 1]

1.74 Although entities are generally required to discharge their tax liabilities irrespective of whether they dispute the existence of the liability, in most cases the consequences for failing to discharge a disputed liability within the necessary time period are limited to interest charges.

1.75 In contrast, a failure to comply with direction to pay a liability in respect of superannuation guarantee charge or a related estimate can result in criminal sanctions. Because these consequences are intentionally far greater than the general approach to liabilities, the rules about extensions are required to ensure that employers do not commit an offence for failing to comply with a direction where they have made a legitimate objection in respect of the decision to issue the direction.

1.76 As noted above, if an employer successfully objects to the decision to issue a direction, or to the amount or existence of the underlying liability, the rules about automatic reductions or revocations of the direction will apply. For example, if the result of the objection is that the underlying liability is reduced, the amount that the employer is required to pay under the direction will be similarly reduced. If an employer unsuccessfully objects to a decision, they will still be required to comply with the direction but will be able to do so under the extended compliance period.

1.77 For the extension to apply, the relevant objection must be made before the end of the period in which the employer was required to comply with the direction. [Schedule 1, item 1, paragraph 265-115(1)(c) in Schedule 1]

1.78 An employer could object to the decision to issue a direction or to the underlying liability after the direction has been issued. In addition, an employer that has already objected to the underlying liability before the direction is issued will have the period in which to comply with the direction automatically extended.

1.79 If an employer has made one of the relevant objections, the period in which it is required to comply with the direction is extended by a period equal to the number of days starting from the time the objection was made and ending 21 days after the Commissioner notifies the employer of the decision in relation to the objection. [Schedule 1, item 1, paragraph 265-115(2)(a) in Schedule 1]

1.80 However, if the employer applies to the Administrative Appeals Tribunal or the Federal Court for a review of the Commissioner's decision in respect of the objection, the period in which to comply is instead extended by a period equal to the number of days starting from the time the objection was made and ending on the day the review or appeal is finally determined. This includes all further appeals to the Full Federal Court or the High Court. [Schedule 1, item 1, paragraph 265-115(2)(b) in Schedule 1]

1.81 These extensions effectively pause the period in which the employer is required to comply with the direction over the time that an objection is being resolved. The additional 21 day period from the time that the Commissioner notifies an employer of the decision about the objection provides an employer with minimum of 21 days in which to decide whether to appeal or seek a review of the decision. A similar extension is not required where the review or appeal is finally determined.

Example 1.3 - extension of period to comply with direction

On 13 September 2019, the Commissioner gave Chapman Co a direction to pay superannuation guarantee charge of $5,000 for the quarter ending 31 March 2019, by 5 October 2019.

On 30 September 2019, Chapman Co objects to that assessment. The objection is disallowed on 22 October 2019. Chapman Co decides not to seek further review of this decision.

The period in which Chapman Co must comply with the direction to pay is extended by 38 days to 12 November 2019.

Application and transitional provisions

1.82 The amendments to insert Subdivision 265-C in Schedule 1 (direction to pay superannuation guarantee charge) apply in relation to an amount of superannuation guarantee charge or an estimate of superannuation guarantee charge that first becomes payable on or after 1 July 2018. [Schedule 1, item 2]

1.83 This is justified because of the severe criminal penalties that can occur for failing to comply with the direction to pay. It is necessary to provide reasonable notice of the application of the amendments for employers to undertake any necessary actions before the amendments become effective.

Consequential amendments

1.84 Schedule 1 also makes an amendment to ensure that the decisions of the Commissioner of Taxation to issue or vary a direction to pay superannuation guarantee charge are exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977. [Schedule 1, item 6]

1.85 The decisions made under the directions do not fall within the general exemption provided in paragraph (ga) in Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 because these decisions do not relate to assessments or calculations of tax, charge or duty. This amendment aligns the judicial review processes available for a decision to issue or vary a direction with those available for other taxation assessments and ensure that these decisions are subject to the same judicial review processes as other taxation decisions by the Commissioner of Taxation. Taxpayers are provided with full review rights under Part IVC which is a well-established and comprehensive review scheme for taxation decisions. Part IVC review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977.

Education directions

1.86 The Commissioner can issue an education direction to an entity if the Commissioner reasonably believes that the entity has failed to comply with one of the following obligations in relation to a specified tax-related liability or under a specified taxation law:

•

Failing to pay an amount of a tax-related liability;

•

Failing to comply with an obligation to give a statement or information to the Commissioner under a taxation law;

•

Failing to comply with an obligation to keep records under a taxation law;

•

Failing to comply with an obligation under the TAA that relates to a taxation law; and

[Schedule 1, item 4, subsection 384-10(1) in Schedule 1]

1.87 The education direction applies to failures to comply with obligations arising from the payment of superannuation guarantee charge that is payable under the SGAA or related estimates of the charge that is payable under the TAA. The education direction also applies to failures to comply with other obligations imposed under the SGAA or an obligation under the TAA as it relates to the SGAA. [Schedule 1, item 4, subsections 384-10(2) and (3) in Schedule 1]

1.88 Under the direction, an individual who makes management decisions of the business must undertake an approved course of education and provide the Commissioner with evidence of completion of the course by the individual. [Schedule 1, item 4, subsections 384-15(1)) in Schedule 1]

1.89 It is expected that an education direction would commonly be issued to an employer where the employer's lack of knowledge or understanding of their obligations has contributed to a failure to comply with their obligations under the SGAA or the TAA.

1.90 The purpose of the Commissioner issuing directions to employers to undertake an approved course is to address knowledge gaps and reduce future cases of non-compliance through entities gaining a better understanding about their ongoing superannuation obligations and liabilities.

Failure to comply with obligations under the SGAA or the TAA

1.91 Employers are subject to obligations imposed under the SGAA. There is no obligation in the SGAA for employers to make superannuation contributions on behalf of employees. This is usually governed by the employment arrangements (e.g. enterprise agreements or awards). However if the minimum superannuation guarantee contribution is not made by an employer for a quarter, they are liable to pay the superannuation guarantee charge equal to the total of the amount of the superannuation guarantee shortfalls, nominal interest and administrative components for the quarter.

1.92 The Commissioner must have reasonable belief that the entity has failed to comply with an obligation listed in the table in subsection 384-10(1) in Schedule 1. This could be a failure to pay a listed tax-related liability (including a superannuation guarantee charge and an estimate of an amount of superannuation guarantee charge) or a failure to comply with other obligations under the SGAA or the TAA. [Schedule 1, item 4, subsections 384-10(1) to (3) in Schedule 1]

1.93 The Commissioner must have evidence of the employer's failure to comply with the superannuation guarantee obligation. The level of evidence does not need to amount to an actual failure to comply with an obligation by an entity. However, the Commissioner must be able to reasonably conclude that there has been a failure to comply with one of the following obligations:

•

Failing to pay the amount of superannuation guarantee charge that is payable (section 16 of the SGAA). This includes failing to pay any superannuation guarantee charge arising from a default assessment (section 36 of the SGAA) [Schedule 1, item 4, item 1 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•

Failing to pay a liability arising from an estimate the Commissioner makes of an unpaid superannuation guarantee charge by the time it is due and payable (subsection 268-20(1)(b) in Schedule 1) [Schedule 1, item 4, item 1 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in subsection 384-10(1) in Schedule 1]

•

Failing to lodge a superannuation guarantee statement for the quarter on or before the 'lodgement day', being the 28th day of the second month after the quarter end (section 33 of the SGAA) [Schedule 1, item 4, item 2 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•

Failing to provide the Commissioner with any information that is requested (section 34 of the SGAA) [Schedule 1, item 4, item 2 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•

Failing to comply with an obligation to keep records as required under the SGAA (section 79 of the SGAA) [Schedule 1, item 4, item 3 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

•

Failing to comply with any other obligation under the TAA that relates to the SGAA [Schedule 1, item 4, item 4 to the table in subsection 384-10(1) and item 1 to the table in subsection 384-10(2) in Schedule 1]

Example 1.4 - failure to comply with an obligation under the SGAA by an individual

Chloe is a sole trader who owns and operates her own business making and supplying wholesale jewellery. Chloe has three wage earning employees, Christine, Jo and Mike. As an employer, Chloe has failed to pay superannuation contributions for all of her employees for four quarters in the 30 June 2017 year and therefore has four superannuation guarantee shortfalls. Chloe lodges her superannuation guarantee statements for one of the four quarters and only pays the superannuation guarantee charge for that quarter. Chloe, as an employer, has failed to comply with her obligations in her failure to lodge a superannuation guarantee statement for three quarters (under section 33 of the SGAA) and her failure to pay the superannuation guarantee charge liability for those quarters (under section 49 of the SGAA).

Example 1.5 - failure to comply with a related obligation under the TAA

Chloe is a sole trader who makes and supplies expensive jewellery. She has been operating her business for four years. Chloe has failed to pay superannuation guarantee contributions for all three of her employees. The Commissioner is aware that Chloe has not lodged any superannuation guarantee statements for any of the quarters.

The Commissioner issues a notice pursuant to Division 268 of estimates for the superannuation guarantee charge payable by Chloe for the quarters in the four years that she has been operating. After being given the notice of estimate, Chloe fails to engage with the Commissioner and does not discharge any of the estimated superannuation guarantee charge liabilities.

Chloe has failed to comply with the company's obligations under the TAA by failing to pay the estimates of superannuation guarantee charges for those quarters.

Requirements of the direction

1.94 If an employer has failed to comply with its obligations under the SGAA or related obligations under the TAA, the Commissioner may issue a written direction to the entity requiring them to take the following actions.

1.95 Firstly, the employer must ensure that an individual undertakes a specified approved course of education provided by the Commissioner or another entity. If the employer is an individual, then the individual is required to attend the course. In all other cases, the employer must ensure that an individual who makes or participates in making decisions that affect the whole or a substantial part of their business attend the course. [Schedule 1, item 4, paragraph 384-15(1)(a) in Schedule 1]

1.96 This requirement captures any person who is in an executive decision making position of any type of employer entity. For example the following individuals would be appropriate to undertake the specified approve course:

•

If the employer is a company - a director or public officer of the company;

•

If the employer is an unincorporated association or body of entities - a member of the committee of management of the association or body; or

•

If the employer is a partnership - a partner in the partnership.

1.97 Secondly, the employer must provide the Commissioner with evidence that the individual has completed the course. [Schedule 1, item 4, paragraph 384-15(1)(b) in Schedule 1]

1.98 The written education direction must specify the period within which the employer must comply with the direction. The period specified must be a timeframe which is reasonable based on the circumstances of the employer. [Schedule 1, item 4, subsection 384-15(2) in Schedule 1]

1.99 An employer must comply with the direction before the end of the specified period provided on the written direction. [Schedule 1, item 4, subsection 384-15(3) in Schedule 1]

1.100 An employer has complied with a direction if the relevant individual (either the employer itself or an individual who participates in making decisions of the business) undertakes the specified course and provides evidence to the Commissioner of completion of the course within the required time period. [Schedule 1, item 4, subsection 384-15(4) in Schedule 1]

1.101 The amendments make it clear that an education direction given by the Commissioner is not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. [Schedule 1, item 4, subsection 384-15(6) in Schedule 1]

Consequences of not complying with the direction

1.102 An employer who fails to comply with the direction within the specified time period is liable to an administrative penalty of 5 penalty units. [Schedule 1, items 4 and 8, paragraph 298-5(c) and subsection 384-15(5) in Schedule 1]

1.103 An entity/employer who has ensured the approved course was undertaken but fails to provide evidence of completion of the course has failed to comply with the direction and is liable to an administrative penalty. This administrative penalty is automatically imposed but can be remitted by the Commissioner.

1.104 The amendments also list a failure to comply with an education direction as an additional circumstance in which a person commits an offence under section 8C. [Schedule 1, item 3, paragraph 8C(1)(fa)]

1.105 Section 8C applies to failures to comply with certain requirements that are imposed under or pursuant to a taxation law. These currently include requirements to provide information to the Commissioner or another person, to notify the Commissioner or another person of a particular matter or thing, and to attend before the Commissioner or another person.

1.106 The offence in section 8C is an offence of absolute liability. However, subsection 8C(1B) provides a defence for persons who are unable to comply with the relevant requirement.

1.107 Tiered penalties apply to offences under section 8C. These penalties are provided for by section 8E and apply different penalties to first, second, and third or subsequent offences. A person who commits a first offence is liable to a fine of up to 20 penalty units, is liable to a fine of up to 40 penalty units for a second offence, and is liable to a fine of up to 50 penalty units and/or imprisonment of 12 months for a third or subsequent offence.

1.108 Adding compliance with an education direction to the circumstances specified in section 8C means that a failure to comply with such a direction is an offence of absolute liability. This means that it is not necessary to establish fault if an employer has failed to comply with the written direction before the end of the specified period.

1.109 Extending the existing offence of absolute liability and the tiered penalties in section 8E to failures to comply with an education direction is appropriate as it maintains consistency with the other failures that are already covered by section 8C. All of the circumstances relate to requirements that are imposed under the taxation law to take particular actions and a failure to comply with an education direction is directly comparable to the existing requirements to notify the Commissioner of particular matters or attend before the Commissioner or another person.

1.110 The existing defence for being unable to comply with a requirement also applies to failures to comply with an education direction, meaning that an employer who is genuinely incapable of complying with the direction will not commit an offence.

1.111 Applying the existing section 8C penalty framework to education directions ensures that the consequences of not complying with a direction are consistent with the existing framework for other failures. The existing penalties will assist in ensuring that employers who have already failed to comply with their obligations under the SGAA and the TAA face appropriate sanction for not fulfilling the further obligation under the TAA in respect of education courses.

Approval of course

1.112 The Commissioner may, in writing, approve one or more courses of education for the purpose of the education direction. A course that is approved by the Commissioner may be provided by the Commissioner or another entity and is likely to be a training course. [Schedule 1, item 4, subsections 384-20(1) and (2) in Schedule 1]

1.113 The amendments make it clear that an approval of a course given by the Commissioner is not a legislative instrument within the meaning of section 8 of the Legislation Act 2003. [Schedule 1, item 4, subsection 384-20(3) in Schedule 1]

Course fees

1.114 An entity providing an approved course of education may charge fees for the course. [Schedule 1, item 4, subsection 384-25(1) in Schedule 1]

1.115 Any fees that are charged must not amount to taxation. [Schedule 1, item 4, subsection 384-25(2) in Schedule 1]

1.116 An entity has the discretion whether to choose to charge fees for the approved course or not. For providers who do charge fees, there must be a nexus between the course fees and the provision of the service that is being provided. It is appropriate that the fees remunerate the course providers for facilitating the education courses.

1.117 The amendments include a savings provision that imposes an obligation on education providers to ensure that any course fees that are charged must not amount to taxation. This approach puts beyond doubt any question about the type of fees that can be charged, and is necessary because of the Constitutional requirement that taxes be imposed in separate legislation. In the event that a fee for an approved course of education purported to amount to taxation, the Commissioner would not be authorised to approve such a course.

1.118 The fees which service providers of the approved courses charge are expected to have the following characteristics:

•

The fees generally have a discernible relation with the value of the provision of the approved course being provided;

•

The fees do not necessarily have to equal precisely or directly with the cost of providing the service;

•

The fees do not have a revenue raising purpose. In the case of a third party enterprise seeking to provide the course, it would be expected that they would have a commercial reason to provide the course and generate profits;

•

The fees can be fixed by reference to the costs of delivering the services to all users, rather than to a particular user, provided there is a rational basis for determining the level of funding between users.

1.119 The course fees are payable by the employer. It is likely the fees are deductible for the employer as they are necessarily incurred in carrying on a business.

Variation of direction by the Commissioner

1.120 The Commissioner can, at any time, make its own variation of the direction, or revoke the direction. [Schedule 1, item 4, section 384-30 in Schedule 1]

Variation of direction at the request of the recipient of the direction

1.121 The recipient of the direction can request that a direction be varied. The request must be in writing, must set out the reasons for the variation and must be provided to the Commissioner before the end of the period specified in the direction. [Schedule 1, item 4, subsections 384-35(1), (2) and (3) in Schedule 1]

1.122 The reasons for variation may include why the recipient cannot comply with the direction within the specified time period, or seek an extension for the timeframe and include the reasons why an extension is required in their specific circumstances.

1.123 The Commissioner must make a decision in relation to the request to:

•

vary the direction otherwise than in accordance with the request;

•

vary the direction that would otherwise be in accordance with the request; or

•

refuse to vary the direction.

[Schedule 1, item 4, subsection 384-35(4) in Schedule 1]

1.124 The decision must be made within 28 days from receipt of the request. If 28 days passes and the Commissioner has not made a decision, the Commissioner is taken to have refused the variation request. [Schedule 1, item 4, subsection 384-35(5) in Schedule 1]

1.125 Where the variation decision is made within the timeframe specified in the direction, the Commissioner must provide notification to the employer of the decision that is being taken. The Commissioner must provide a copy of the varied direction and written reasons for the decision in relation to the request if the decision is to refuse the request or to vary the request that is different to what was requested by the employer. [Schedule 1, item 4, subsection 384-35(6) in Schedule 1]

1.126 Those who make a request to vary a direction receive automatic extensions for the date specified in the direction in which they must comply with the education direction. The extension is limited to the period starting from the day the Commissioner receives the request and ends on the day the Commissioner provides notification of the decision in relation to the request. [Schedule 1, item 4, subsection 384-35(7) in Schedule 1]

Objection rights

1.127 The recipient of a direction can object to a decision of the Commissioner to issue a direction, vary a direction or refuse to vary a direction in accordance with a request under the taxation laws set out in Part IVC of the TAA. [Schedule 1, items 4 and 7, paragraph 14ZW(1)(bj) and section 384-40 in Schedule 1]

Application and transitional provisions

1.128 The amendments to insert Division 384 in Schedule 1 (education directions) apply in relation to a failure to comply with a superannuation guarantee obligation that occurs on or after 1 July 2018. [Schedule 1, item 5]

1.129 This includes a failure to pay an amount of superannuation guarantee charge or an estimate of a superannuation guarantee charge that became payable before 1 July 2018 and remains payable on or after 1 July 2018. This is justified because the failure to pay an amount of superannuation guarantee charge that is due and payable would still have occurred if the amount is an existing unpaid amount that is not settled by the employer.

Consequential amendments

1.130 Schedule 1 also makes an amendment to ensure that the decisions of the Commissioner of Taxation to issue or vary an education direction are exempt from the operation of the Administrative Decisions (Judicial Review) Act 1977. [Schedule 1, item 6]

1.131 The decisions made under the directions do not fall within the general exemption provided in paragraph (ga) in Schedule 1 to the Administrative Decisions (Judicial Review) Act 1977 because these decisions do not relate to assessments or calculations of tax, charge or duty. This amendment aligns the judicial review processes available for a decision to issue or vary a direction with those available for other taxation assessments and ensure that these decisions are subject to the same judicial review processes as other taxation decisions by the Commissioner of Taxation. Taxpayers are provided with full review rights under Part IVC which is a well-established and comprehensive review scheme for taxation decisions. Part IVC review is equally as accessible and effective as review under the Administrative Decisions (Judicial Review) Act 1977.