Introduction

6.1 The IGT's Review into the Australian Taxation Office's Administration of the Superannuation Guarantee Charge arose as a result of concerns expressed by stakeholders with the general level of Superannuation Guarantee (SG) compliance and, in particular, the ATO's timeliness and responsiveness to employee complaints regarding the non-payment of SG. Concerns were also expressed about the adequacy of the ATO's enforcement action and monitoring as well as the level of outstanding Superannuation Guarantee Charge (SGC) collected. Terms of reference for this review were announced on 2 June 2009.

6.2 The review examined the ATO's processes for identifying the level of SG non-compliance and also assessed the ATO's non-compliance detection mechanisms and approaches taken following that detection. Furthermore, the review considered the ATO's risk assessment strategies and its implementation, communication strategies with employee, the timeliness of actioning employee notifications, the level of information provided about the collection of unpaid superannuation and timeliness in collecting unpaid SGC.

6.3 The review found that the people most at risk with the current SG system were the employees who were least empowered or who were incorrectly classified as 'independent contractors'.

6.4 The recommendations outlined in the report sought to improve the SG system and the ATO's administration by:

  • minimising the time period between the non-payment of an SG entitlement and the ATO's awareness of it;
  • improving the ATO's ability to proactively identify high-risk cases and trigger a compliance response;
  • improving aspects of the ATO's compliance and debt collection processes;
  • improving the deterrence or penalty effect on those employers that did not lodge SGC Statements and the delayed or non-payment of SG entitlements; and
  • better protecting SG entitlements where an employer became insolvent.

6.5 Overall, the IGT directed seven recommendations in full and three recommendations in part, to the ATO. The remainder were made for the previous Government's consideration. The ATO fully agreed with nine of the recommendations directed to it and disagreed with one of those recommendations — the latter is reproduced in Appendix 1.

6.6 On 24 November 2010, the then Minister publicly released the report of this review.

Implementation of agreed recommendations

6.7 The following sections set out the agreed recommendations and examine the ATO's implementation to that extent.

Recommendation 1

Given the identified barriers to quantifying the level of non-compliance, to better detect SG non-compliance the ATO should determine the current and accessible information and data required for a more sophisticated analysis of the SG population so as ascertain a more complete picture in relation to the level of non-compliance and its impact on employees.

This should include the collection and analysis of data (including additional information that may be captured and available to the ATO in the future in line with Recommendation 3) to estimate the amount of money involved with SG non-compliance, the percentage of non-compliant employers and affected employees across market segments and the quantum of the salary sacrifice component.

ATO position — implemented

6.8 The ATO agreed with this recommendation, noting that it would use all readily available data and information to ascertain a more fulsome picture of SG compliance levels in various markets and industries.

6.9 The ATO has advised that an analysis was undertaken on ATO information and data collected on employers that were the subject of employee notification (ENs) complaints and third party referrals. The analysis was undertaken to determine the characteristics of employers who are more likely to be prone to SG non-compliance. The characteristics of the non-compliant employer included the industry, location, operating structure, size and market segment.

6.10 On 1 July 2009, compulsory reporting on Reportable Employer Superannuation Contributions (RESC) was introduced. As a result, the ATO began undertaking analysis of the RESC data that was collected. RESC data consists of those contributions where the employee has influenced the amount of superannuation that was contributed — for example, salary sacrificed amounts. The analysis of this data provided the ATO with further understanding of employer compliance at a macro level — for example, being able to identify industries that potentially make employer contributions in excess of the SG. The ATO has advised that it will continue to use RESC data in future diagnostic analysis of SG non-compliance.

6.11 Furthermore, as part of the ATO's data matching strategy, it has used internal data, such as employee salary, wage and contribution figures, to also help identify those industries or employers who have the highest risk of being non-compliant.

IGT conclusion — implemented

6.12 The IGT considers that the ATO has implemented this recommendation.

6.13 It should be noted that the extent to which the ATO was able to undertake the analysis envisaged in the second paragraph of this recommendation was contingent on legislation being enacted to implement Recommendation 3, which would lead to an increase in the data available to the ATO over time. As such legislation has not been enacted, the ATO has been unable to estimate accurately the amount of money involved with SG non-compliance, the percentage of non-compliant employers and affected employees across market segments and the quantum of the salary sacrifice component.

6.14 Where further opportunity arises for the ATO to improve performance monitoring strategies by collecting additional data relating to the amount of money involved with SG non-compliance and the percentage of employees affected by employer SG non-compliance the IGT would support such action.

Recommendation 2

6.15 This recommendation was made for the previous Government to consider and is reproduced in Appendix 2.

Recommendation 3

The Government consider improving the current payment and information systems for SG obligations to allow the ATO to undertake more real-time monitoring and rapid follow up of high-risk employers, particularly micro-businesses.

The payment and information systems should have the following features:

  • Capturing the following details for each employee: name, tax file number, ordinary time earnings, amount of superannuation contribution paid by employer, superannuation fund and member number;
  • ATO to have access to this data on a quarterly basis; and
  • Compulsory requirement for all employers in high-risk segments to participate in the system rather than it being optional.

In a manner that minimises compliance obligations, the ATO should also engage superannuation funds and clearing houses to obtain information for the purposes of identifying potential SG non-compliance.

ATO position — implemented

6.16 The ATO agreed with the part of the recommendation that was directed to it, noting that the ATO already encourages people in the superannuation industry and others to provide information on employers at risk of non compliance with their SG obligations.

6.17 Since that time, the ATO has advised that a number of superannuation funds, clearing houses and other government departments have been engaged directly so that information can be obtained to identify potential SG non-compliance. For example, the ATO, together with the Industry Funds Forum,109 established a steering committee to guide and oversee a pilot to examine SG compliance in the building and construction industry. The pilot identified that the parameters already used by the ATO to detect SG non-compliance are consistent with those found to be indicators of SG non-compliance in the data provided by the Building and Construction Industry superannuation funds.

6.18 Furthermore, the ATO has advised that it entered into an agreement with the Department of Human Services (DHS) for the exchange of data relating to the Small Business Superannuation Clearing House (SBSCH). The ATO has advised that the data from the SBSCH could be used to:

  • profile compliant employers to assist with strategies for non-compliant employers and for use as a general measure of compliance;
  • assist resolution of EN cases against employers registered with the clearing house; and
  • risk assess employers who cease to make payments to the clearing house for potential SG compliance action.

6.19 A MOU was also entered into by the ATO and the Fair Work Ombudsman (FWO), whereby the FWO would supply data to the ATO which contain details of employers who appear to have not paid SG during the course of FWO investigations.

IGT conclusion — implemented

6.20 The IGT considers that the ATO has implemented this recommendation.

6.21 It should also be noted that on 28 November 2012, the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 was introduced. Amongst other things, the legislation expanded superannuation reporting by requiring superannuation providers to provide statements to the ATO for all members who held an interest in the super plan at any time during a reporting period. The new legislation will provide an opportunity for the ATO to engage and develop communications with a number of superannuation providers and ascertain whether the additional information collected from them may be used for the purpose of identifying potential SG non-compliance.

Recommendation 5

To improve the employee experience of ATO communications in relation to its investigation of EN complaints, the ATO should improve its communications by ensuring that:

  • Employees receive appropriate and personalised letters in a timely manner that set out the following details:
    • SGC liabilities raised by the ATO on behalf of employees following an investigation;
    • SGC amounts collected by the ATO; and
    • Where the ATO has not been able to collect, the reasons for non-collection (for example, insolvent employer, uneconomical to pursue) and the amount written-off.
  • Auditors correctly complete the case management system so as to allow ATO officers to appropriately respond to employee requests for updates on ATO action.

ATO position — implemented

6.22 The ATO agreed with the recommendation, noting that whilst it had already taken steps to minimise the likelihood of auditors making errors when completing case management files in the related systems. The ATO also indicated that they would review its letters to improve communications with relevant SG-affected employees. Currently, the ATO issues letters at different stages of superannuation guarantee investigations. When SG liabilities are established and raised, letters are sent to the employees, informing them of the amount raised and collected. Where the ATO is not able to collect, letters providing reasons for non-collection are sent to the employees.

6.23 In respect of the second part of the recommendation, the ATO has advised that regular reporting has been implemented to reduce the level of errors made in issuing automated letters and to ascertain whether internal ATO templates are correctly completed by audit officers. A reduced level of errors in completing these templates, therefore, better assists ATO officers in responding appropriately to employee requests for updates on ATO action. To further improve this process, the ATO has also advised that it is changing its systems to automate the implementation of this recommendation presently.

IGT conclusion — implemented

6.24 The IGT considers that the ATO has implemented this recommendation.

Recommendation 6

To improve transparency of the time taken for the ATO to complete its compliance action in response to employee notifications, the ATO should also measure its performance with the 4-month and 12-month completion timeframes from the date that an employee lodges a valid complaint with the ATO.

ATO position — implemented

6.25 The ATO agreed with this recommendation and noted that it would implement new performance standards in the 2010-11 financial year.

6.26 The ATO has advised that it measures performance and responsiveness with 4-month and 12-month completion timeframes. These timeframes commence from the date that an employee lodges a 'valid complaint' which is a complaint comprising all the information necessary to commence compliance action.

6.27 Since the 2010-11 financial year, the ATO reports the performance regarding the 4-month and 12-month completion timeframes in its Annual Reports. The ATO's performance benchmarks for superannuation complaints are as follows:

  • 100 per cent of superannuation complaints commenced within 28 days;
  • 50 per cent of superannuation complaints resolved within 4 months; and
  • 90 per cent of superannuation complaints resolved within 12 months.

6.28 The following performance results were extracted from the Commissioner's 2012-13 Annual Report:110

Table 7: Completion timeframes for Superannuation Guarantee cases
Percentage of superannuation guarantee cases completed in a timely manner

99.2% commenced within 28 days (benchmark 100%)

50.8% completed within 4 months (benchmark 50%)

99.7% completed within 12 months (benchmark 90%)

Source: Commissioner of Taxation, Annual Report 2012-13

IGT conclusion — implemented

6.29 The IGT considers that the ATO has implemented this recommendation.

Recommendation 7

To ensure continuous improvement of the EN complaints process, the ATO should measure the time it takes for an employee to receive their SG entitlement from the time that they lodge an EN complaint.

ATO position — implemented

6.30 The ATO agreed with this recommendation but qualified that implementation was subject to its systems capabilities. Furthermore, the ATO stated that the implementation of this recommendation was contingent on the implementation of SG systems into the new enterprise platforms, which was not expected to occur until 12 months after the recommendation was made.

6.31 The ATO has advised that it implemented a manual tracking process of EN complaints received in the 2008-09 and 2009-10 financial years. The ATO continues this process on a yearly basis. The ATO has also advised that the manual tracking process provides a platform to:

  • obtain a complete and accurate picture of the EN population and how the ATO is performing in terms of actioning ENs;
  • assist with risk differentiation, such as improving the ATO's abilities to focus resources on areas of higher risk;
  • ensure that ENs are correctly and completely actioned irrespective of which ATO business line is actioning the case;
  • identify situations where the automatic allocation system has broken down and those funds which should have been allocated to the notifier remained unallocated;
  • identify letters that have not been issued to taxpayers;
  • enable the ATO to send letters more quickly where a finalisation letter had not been issued and there has been a break down in the EN process; and
  • improve the speed and accuracy of notifications, resulting in less complaints and rework.

6.32 In continuing with this process the ATO expects to clearly identify trends and improvements in SG EN complaints, particularly in areas such as reporting, governance and work practices.

IGT conclusion — implemented

6.33 The IGT considers that the ATO has implemented this recommendation.

Recommendation 8

As a means to better measure performance around SG administration and increasing transparency, the ATO should report on the following:

  • the number of SG complaints leading to an SGC liability being raised and those leading to no result;
  • the total number of employees whose superannuation entitlements are checked and the number of employers whose records are checked;
  • the percentage of superannuation complaints resolved in accordance with the service standards; and
  • the total amount and basis for SGC written-off.

ATO position — implemented

6.34 The ATO agreed with this recommendation and qualified that implementation was subject to data being readily available from its systems.

6.35 The ATO advised that it currently reports performance information around SG administration in its Annual Report. The following was extracted from the 2012-13 Annual Report:

Table 8: Reported Superannuation Guarantee performance information
IGT recommendation Type of ATO information reported 2012-13 performance
Rec 8 Part 1 Number of superannuation guarantee complaints leading to a superannuation liability being raised and those leading to no result

Complaints leading to liability being raised — 11,413

Complaints leading to no result — 5,563

Rec 8 Part 2 Number of employees who have had superannuation guarantee entitlements raised through compliance activities and voluntary disclosures

154,644 employees had entitlements raised through compliance activities

360,922 employees had entitlements raised through voluntary disclosures

Rec 8 Part 2 Number of employers whose records were checked 18,102
Rec 8 Part 3 Percentage of superannuation guarantee cases completed in a timely manner

99.2% commenced within 28 days (benchmark 100%)

50.8% completed within 4 months (benchmark 50%)

99.7% completed within 12 months (benchmark 90%)

Rec 8 Part 4 Value of superannuation guarantee debt on hand and the amount of superannuation guarantee debt written off

$932.1 million superannuation guarantee debt on hand (including collectable debt)

$203.8 million superannuation guarantee debt written off (due to employer insolvency or that it was uneconomical to recover)

Source: Commissioner of Taxation, Annual Report 2012-13

6.36 The ATO also reported the amount of SCG raised, collected and transferred to superannuation funds or paid to individuals in the 2012-13 financial year. These amounts were $646.4 million, $337.4 million and $311.8 million, respectively.111

IGT conclusion — implemented

6.37 The IGT considers that the ATO has implemented this recommendation.

Recommendation 9

The Government consider whether the current multi-faceted and complex penalty system applying to SG (such as non-deductibility of SGC, the application of nominal interest and the administrative component from the beginning of each quarter and Part 7 penalties) should be streamlined and better targeted to improve voluntary compliance.

To bolster the Part 7 penalty regime as part of an effective deterrent against non-payment of SG entitlements, and give greater importance to the lodgement of SGC Statements, the ATO should revise its policy and administration of the penalty regime to ensure it strikes an appropriate balance between:

  • Discouraging the non-lodgement of SGC Statements by imposing penalties at a more meaningful level; and
  • Recognising the need for appropriate remission in circumstances where the non-lodgement was due to circumstances outside the employer's control.

The ATO should seek to more widely publicise the outcomes of its application of Part 7 penalties to deter non-compliant behaviour but in a way that protects taxpayer secrecy.

ATO position — implemented

6.38 The ATO agreed with the part of the recommendation that was directed to it.

6.39 The ATO has advised that its procedures in relation to the application of 'Part 7' penalties have been reviewed to ensure that these penalties are effectively used to deter non-compliance with SG obligations.

6.40 On 15 September 2011, the ATO publicly released PSLA 2011/28 Superannuation guarantee — remission of additional superannuation guarantee charge imposed under subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992 which provides guidelines for the remission, in whole or part, of the Part 7 penalty. This practice statement requires ATO officers to ensure that employers in like circumstances (so far as practicable) receive like treatment112 and also to consider the following:

Any decision concerning the remission of the Part 7 penalty must have regard to the circumstances of the case including the effort made by the employer to comply with the obligation to self-assess the liability for SGC. Tax officers should bear in mind that the purpose of imposing penalties is to ensure employees' superannuation entitlements are protected and to encourage future voluntary compliance and continuing co-operation from employers. It is appropriate to treat genuine attempts to comply differently to situations where an employer does not make an effort to comply. This approach accords with principles of the Taxpayers' Charter and with the compliance model.113

6.41 The ATO's has advised that during the 2012-13 financial years and the YTD, the total Part 7 penalties raised in proportion to the total SGC raised were 12.5 per cent and 12 per cent respectively. Given this percentage, the ATO were of the view that publicly communicating this information would be unlikely to deter non-compliant behaviour. As an alternative to public communication of Part 7 penalties, the ATO has advised that it addresses employers directly. In letters to employers at various stages of the audit process, the recipient is informed that:

substantial penalties are automatically imposed under the law if you fail to meet your super obligations. However, they can be significantly reduced if you complete and return SGC statements to us, for each period where a shortfall exists, within 21 days or before we notify you of our intention to undertake an audit, (whichever is later), and have a good compliance history.114

IGT conclusion — implemented

6.42 The IGT considers that the ATO has implemented this recommendation.

Recommendation 10

To bolster SG prosecution action as part of an effective deterrent against non-payment of SG entitlements the Government consider whether the ATO should be afforded greater prosecution powers (such as the ability to seek the imposition of civil pecuniary penalties) where an employer does not pay SG and fails to cooperate with the ATO.

In the event that the ATO is given greater prosecution powers, the ATO should implement a media strategy that is designed to maximise the compliance leverage effect by raising the coverage and profile of SG prosecution cases.

Notwithstanding being granted these further powers, the ATO should adopt a stronger prosecution strategy for the more egregious and high-risk employers and should also finalise and publicly release its revised SG prosecution strategy and implementation plan.

ATO position — implemented

6.43 In relation to that part of the recommendation directed to the ATO, the ATO agreed to publish the key elements of its SG prosecution strategy once it was complete.

6.44 The ATO has advised that as a result of the recommendation it has reviewed and broadened its SG prosecution strategy by targeting repeat offenders115 and issuing an increased number of formal notices to provide information (section 77 notices). This broadened prosecution strategy was published on 13 December 2011.116

6.45 The ATO has advised that it will also develop a media strategy for publicising prosecutions if greater powers are provided through future legislative changes.

IGT conclusion — implemented

6.46 The IGT considers that the ATO has implemented this recommendation.

Recommendation 11

6.47 This recommendation was made for the previous Government to consider and is reproduced in Appendix 2.

Recommendation 12

To minimise SGC debt defaulters, the ATO should improve its risk identification techniques to better target high-risk employers with firmer action sooner. For instance, the ATO's debt collection processes should place greater emphasis on employers' previous compliance behaviour in determining how a debt case is actioned.

Where an employer has defaulted in their payment arrangement, the ATO should require further information regarding the employer's financial and compliance position before entering into further payment arrangements.

ATO position — implemented

6.48 The ATO agreed with this recommendation, noting that it had implemented the key elements of the recommendation and continues to explore options to further improve its case risk assessment and differentiated compliance approach to SGC debt collection.

6.49 On 18 May 2011, the ATO commenced the 'Debt Right Now' (DRN) pilot for SGC debt collection. Due to the success of the pilot, it has become a part of the ATO's 'business as usual' process for SGC debt collection.

6.50 The DRN uses the ATO's existing debt risk-rating models to produce 'risk scores' which are then used to determine the action that will be taken by the ATO. Employers with low risk scores are actioned by automated processes, such as automated demand letters and may receive more than one telephone call before the ATO proceeds to firmer recovery action. However, the ATO proceeds to firmer action sooner when employers have high risk scores — for example, if a payment arrangement is not agreed, a garnishee action or creditor's statutory demand will be issued. The ATO has advised that as a result of the pilot, the ATO have increased their collections, which led to decreased numbers of debt cases and values of debts outstanding.

IGT conclusion — implemented

6.51 The IGT considers that the ATO has implemented this recommendation.


109 A non-profit, non-political, national incorporated association whose members are the Chief Executive Officers of twenty eight (28) of Australia's largest industry superannuation funds.

110 Commissioner of Taxation, Annual Report 2012-13 (2013) p 69.

111 ibid.

112 ATO, Superannuation Guarantee — Remission of Additional Superannuation Guarantee Charge Imposed under Subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992, PS LA 2011/28, 12 December 2012, para [15].

113 ibid, para [16].

114 ATO, 'Notice of Advice Received Letter', internal ATO Document, 22 April 2014.

115 ATO, Superannuation Prosecution Strategy — Formal Notice to Provide Information (July 2012).

116 ATO, Superannuation Prosecution Strategy (5 July 2012).