Murray Howlett
Many company directors are unaware that they could be personally liable for unpaid superannuation payments for contractors and are potentially easy targets for the Australian Taxation Office (ATO), warns a leading tax strategist.
Murray Howlett, a partner at chartered accounting firm Pilot Partners, said the ATO rules around superannuation payments had tightened substantially in recent months and any company director in any sector who deals with sub-contractors could be exposed.
Mr Howlett’s comments come in the wake of this week’s announcement by Financial Services Minister Kelly O’Dwyer that the ATO would be able to apply for court-ordered penalties, up to a year in prison in the worst cases, where an employer gets caught shirking their superannuation liabilities.
“These new penalties don’t just apply to an employer but also to company directors, many of whom don’t recognise their responsibility, and it’s the first place the ATO looks,” said Mr Howlett.
“Superannuation penalties is a big one and directors need to know that they can be personally liable for super that they didn’t pay in respect to contractors.
“You think you know where these liabilities start and stop, but there are multiple ways under multiple tax laws where different parties can be liable.”
Under current Australian law if you hire a contractor paid wholly or principally for their labour, they are considered your employee for the purposes of superannuation and are entitled to superannuation payments, even if they’ve quoted an Australian Business Number.
If superannuation is not paid in these instances and if the ATO is not notified within three months of the due date, the director becomes personally responsible.
Howlett said company directors could be liable for super payments for many years not just a standard three or four year period and are unable to hide behind complex company structures or family trusts from backdated claims.
“Superannuation Guarantee rules are oddly drafted and it’s very easy for company directors to get caught out,” he said.
“You might think you understand your exposure to the ATO and that your company structure will protect you, but that’s not always the case.
“There is a strong belief that a company is separate from its owners, however, the government regulator has created trap doors you can fall through in this _ the year of the tax audit _ and more and more people are getting caught short five or six years after the laws were introduced.”
Howlett said the ATO’s data tracking capabilities had improved exponentially over the past five years and recommended directors only hire proprietary limited entities.
“There is no secret that the ATO is looking for revenue and contractors are kryptonite,” he said.
“If you do hire a contractor, then make sure they have a proprietary limited company otherwise your exposure to future claims is very real.”
Characteristics that suggest a contractor may be eligible for superannuation include:
- The level of independence – who, when, where and how the work is performed;
- Rates of pay and how they are negotiated;
- Their appearance to the world at large – does it look like they represent the company?