Geelong Turf - AAT upholds ATO’s 100% super guarantee penalty

In the recent decision of Geelong Turf Company Pty Ltd and Commissioner of Taxation [2023] AATA 1718, the Administrative Appeals Tribunal (AAT) upheld super guarantee charge (SGC) assessments issued by the Commissioner of Taxation (Commissioner) and refused to remit the 100% SGC Part 7 penalties.

The taxpayer had operated a landscaping business (referred to in this article as the “taxpayer” for simplicity, whereas the applicant to the AAT for this decision was his business entity) which was contacted by the Commissioner between 3 October 2019 and 26 February 2020, after which the business’ accountant was also contacted by the Australian Taxation Office (ATO), requesting evidence as to its having made super contributions for its employees. No response was provided. On 12 March 2020 the ATO commenced a superannuation guarantee (SG) audit of the business, 6 days after the superannuation guarantee amnesty (SG Amnesty) received royal assent. The SG amnesty ended on 7 September 2020.

Following completion of the SG audit on 3 March 2021, the ATO notified the business that it would issue default SG assessments for numerous quarters, some including the SG Amnesty quarters, of $60,023.42, plus Part 7 penalties at 150% of the SGC. These penalties where further remitted to 100% after the taxpayer lodged an objection. For SGC assessments for non-SG Amnesty quarters these were reduced from 150% to 56% by the Commissioner and then reduced to nil during the AAT proceedings. Therefore, the Tribunal proceedings were in relation to the 100% Part 7 penalties.

The ability to reduce the penalty below 100% has been limited to 2 situations:

  • The employer voluntarily lodged a SG statement prior to being notified of any ATO compliance action; or

  • Exceptional circumstances prevented the employer from lodging the statement during the amnesty period or before the ATO commenced compliance action.

We have noted here that a Part 7 penalty is not a penalty on the employer for failing to meet their SG obligations. Rather, it is a penalty on the employer for not promptly disclosing to the Commissioner where they have an SG shortfall.

The sole question for the AAT on this matter was whether there were exceptional circumstances to allow the AAT to re-decide the Commissioner’s decision and further reduce the remaining SGC amount from 100% to nil.

The AAT covered a number of case law and parliamentary sources in describing interpretations as to “exceptional circumstances”. Among other descriptions, the AAT referred to the phrases: “unusual”, “uncommon”, “unprecedented”, “exceptional”, which “cannot be one that is regularly, routinely, or normally encountered”, “to require circumstances that rarely occur and perhaps are outside reasonable anticipation or expectation”, and “sets a very high threshold which cannot be easily satisfied”.

The taxpayer claimed their initial accountant understood their SG requirements, however, that accountant fell terminally ill and the business’ replacement accountant had caused the business’ situation of having missed its SG notification requirements (that accountant was subsequently replaced with a new accountant). The taxpayer also claimed they had suffered mental and physical suffering and that his business made no profit during the period in question, which the AAT noted as curious that this information was not provided in his correspondence and initial objection to the ATO.

The AAT found that the taxpayer’s circumstances were not exceptional circumstances because, among other reasons:

  • the taxpayer’s health issues did not prevent the taxpayer from meeting his business’ SG notification requirements because the taxpayer continued to arrange for the business to lodge its income tax and business activity statements throughout the period in question

  • limited knowledge of the business as to its accounting and tax matters are not exceptional circumstances

  • the business continued its SG shortfall post the former accountant’s suspension indicating that the business’ failure to make the required SG notifications and disclosures was a systemic failure and not necessarily linked to one accountant

This decision illustrates the importance of complying with SG obligations and, where employers miss the super contribution due dates, the importance of lodging SGC statements (even where they don’t have the funds to make the SGC payments). Here, the lodgement of SGC statements would have resulted in no Part 7 penalties and would have saved the employer the cost and effort of the ATO audit, the objection and the AAT proceedings.

To discuss this further or for more information please contact:

Phil Broderick
Principal
Sladen Legal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

Terence Wong
Senior Associate
Sladen Legal
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au

Terence Wong