What’s trending? Federal Government, ATO double down on data-led superannuation reviews and debt-recovery proactivity

25 August 2023

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On 27 July 2023, the Australian Taxation Office (ATO) released its 2023-24 Corporate Plan. As anticipated, ‘Superannuation Guarantee integrity’ was identified as one of the regulator’s eight ‘key focus areas’ for the financial year, with the core objective being to ‘(c)ontinue to expand our use of data to improve superannuation guarantee (SG) compliance’.

This focus on SG compliance, through data-led analysis, should not come as a surprise - the Federal Government’s May 2023 Budget specifically allocated $27 million to the ATO ‘to improve data matching capabilities to identify and act on cases of SG underpayment by employers’.

The bedrock of data-led payroll analytics for the ATO is undoubtedly Single Touch Payroll (STP), which will act as the source of truth in relation to each employee’s entitlements. Further, the advent of STP - Phase 2 (STP2) will provide insight into the accuracy of an organisation's superability and taxability of individual payroll elements.

Importantly, a data-led review/audit approach is not a new initiative - from late last year, we observed a significant uptick in ATO compliance measures based on analysis of STP reporting. With the additional Government investment, and the regulator’s ‘key focus area’ nomination, employers should expect an evolution to more regular enquiries, underpinned by granular analysis, including from STP2 reporting at a per-employee level. The ATO has clearly expressed its aim of introducing a more proactive compliance environment, with its resolve no doubt hardened by recent critiques of its historical approach.

The corollary to this data-led investment is debt-recovery of shortfalls. Specifically, another ‘key focus area’ for 2023-24 is to ‘address collectable debt’, with the objective being to ‘take decisive and swift action’. This is reflected in the ATO’s performance targets, which include a measure for SG Charges (SGCs) distributed within 12 months of being raised. In this regard, in recent audits, we have observed a clear change in regulator approach, including director penalty warning notices (DPWNs) where employers are not responsive to initial ATO approaches.

In Detail

Although the recent escalation in regulatory SG compliance activity could be viewed as sudden, this was an expected initiative. Following the SG Amnesty and the extent of underpayments reported, SG compliance was identified as a parliamentary priority, with the Federal Government having commissioned the Australian National Audit Office (ANAO) to conduct an audit of the ATO's performance as SG administrator. In its April 2022 report, the ANAO made three key recommendations: (1) implement a preventive and proactive approach to SG; (2) assess performance against public accountability and targets; (3) utilise more efficient forms of enforcement and debt recovery.

These three key recommendations are at the core of the Federal Budget and ATO Corporate Plan measures - the preventive and proactive approach to SG will be data-led, with clearly outlined performance indicators that the ATO can be measured against, including in respect of debt-recovery of shortfalls.

In her keynote speech at PwC’s Payroll Leaders’ and Employment Taxes Forum in November 2022, the ATO’s Deputy Commissioner for Superannuation & Employer Obligations, Ms Emma Rosenzweig, had foreshadowed this program of work. Specifically, in relation to data analysis, she flagged that the ATO will ‘increasingly use STP information at scale and in more automated ways’, noting that STP data ‘also highlights where there are areas that need our attention, and those employers we need to engage with’.

In terms of key deliverables for the ATO’s ‘SG integrity’ focus, the recently-released Corporate Plan notes these as being:

‘Continue work to create a transparent view of employees’ SG for all funds and all employers in one place, to support the ATO to follow up employer non-compliance more proactively
Improve nudges to support employers to self-correct SG issues and keep track with their obligations
Continue to focus on employer and superannuation fund reporting timeliness, completeness and accuracy
Include new measurements of SG charge raised, collected and distributed in the annual report’.

With respect to the last mentioned point, the emphasis not only on raising SGCs, but also on collection and distribution, is reflected in the ‘Address collectable debt’ focus of the ATO, including the following key deliverables:

‘Apply differentiated strategies and targeted interventions to address collectable debt
Optimise allocation of effort to strengthen debt prevention and recovery, including expedited stronger actions for clients with capacity to pay
Improve client segmentation to better reflect predicted payment behaviours, with differentiated treatments designed to accelerate payment outcomes
Set clear expectations and promote transparency of debt recovery approaches to clients and intermediaries, including potential firmer action consequences where clients do not engage’.

As evident from these key deliverables, the regulator has placed a premium on shortfall recovery, with a change in tact towards enforcement and urgency, comprising:

‘targeted interventions’;
‘expedited stronger actions’; and
‘potential firmer action consequences’.

Relevantly, for the recent data-led audits, we have observed some insight into this change, namely instances of the ATO issuing communications comprising DPWNs and/or warnings regarding reporting employers to the credit reporting bureaus for unpaid debts.

Key Takeaways

It is evident that the ATO has now firmly implemented the key ANAO recommendations and, supported by Federal Government investment into data analysis, is making unprecedented advances in identifying, and acting upon, variances and discrepancies within employers’ reported data in relation to SG (and pay-as-you-go withholding (PAYGW)).

Therefore, it is paramount that employers, as a priority, critically review governance in place, including (but not limited to):

the processes and controls for reconciliation between remittance/Superstream and STP reporting (including historically); and
the organisation’s processes and controls framework to ensure compliance with recent developments, in particular STP2.

In relation to the latter, three immediate focuses should be:

Payroll system configurations - review of all pay codes to test alignment with SG and PAYGW obligations;
STP2 category mapping - review of pay code classification to the STP2 labels, including alignment to the tax and superannuation outcomes in payroll; and
Data testing – review of payroll system outputs for superannuation, against STP2 lodgements, against remittances (to identify data exceptions) and associated reporting (e.g., SuperStream for SG and Activity Statements for PAYGW).

Should you wish to understand more about the ATO’s data-led approach to SG and PAYGW non-compliance, or if you have any questions about your obligations, please reach out to your PwC employment taxes advisor for assistance.