The ATO actively audits employers’ superannuation guarantee compliance. Here is what an SGC audit involves, the penalties at stake, and how to protect your business.
Superannuation guarantee compliance is one of the ATO’s highest audit priorities. Every employer in Australia is required to pay superannuation guarantee contributions of at least 12% of each eligible employee’s ordinary time earnings to a compliant superannuation fund, and to pay these contributions on time. (The SG rate rose to 12% on 1 July 2025, the final step in the legislated increase.)
Falling behind on superannuation, even briefly, even unintentionally, can trigger the superannuation guarantee charge regime, which is significantly more expensive than simply paying the overdue contributions. And if the ATO audits your payroll and finds historic SG shortfalls, the resulting liability can be very large indeed.
The superannuation guarantee charge (SGC) is a charge imposed on employers who fail to pay the required SG contributions to eligible employees by the quarterly due dates. The SGC is calculated on a different and broader base than ordinary SG contributions, it includes salary sacrifice contributions in the earnings base and adds a nominal interest component of 10% per annum.
On top of the SGC itself, late or shortfall SGC attracts an administration component of $20 per employee per quarter, and potentially Part 7 penalties of up to 200% of the SGC amount. This means that a seemingly modest SG shortfall can generate a liability of three times the original amount.
Unlike ordinary SG contributions, SGC payments are not tax-deductible. This makes falling into the SGC regime significantly more expensive than paying contributions on time.
ATO SGC audits can be triggered in several ways. An employee complaint or tip-off to the ATO is one of the most common triggers, employees who have noticed that their superannuation has not been paid, or has been paid late or in incorrect amounts, can and do report this to the ATO.
The ATO also uses data-matching to identify employers whose reported payroll does not appear to match their superannuation contributions. Single Touch Payroll data, which employers are required to report to the ATO in real time, gives the ATO unprecedented visibility into employers’ payroll and superannuation payment history.
Industry-wide campaigns are another source of SGC audits. The ATO periodically targets specific sectors, including the hospitality, cleaning, security, and construction industries, for intensive compliance checking.
An SGC audit typically begins with the ATO issuing a letter informing the employer that it is reviewing their superannuation guarantee compliance. The ATO will request payroll records, superannuation fund payment records, and employment contracts for the relevant period.
The ATO’s auditors will then reconcile the employer’s payroll with their superannuation payment records to identify any periods where contributions were paid late, were short of the required amount, or were not paid at all.
Once the audit is complete, the ATO will issue a position paper setting out the assessed SGC liability, along with any proposed penalties. The employer has an opportunity to respond before the assessment is finalised.
Part 7 penalties under the Superannuation Guarantee (Administration) Act can be imposed at up to 200% of the assessed SGC amount. In practice, however, the ATO frequently remits a portion of these penalties, particularly where the employer has cooperated fully with the audit and has no history of SG non-compliance.
In a case handled by our office, a well-known Sydney franchise business was assessed with Part 7 penalties of 200% of the SGC amount. The ATO had already remitted the first 100% in recognition of the employer’s voluntary disclosure. Our office successfully argued for full remission of the remaining 100%, and the ATO agreed.
The key to a successful remission outcome is a well-prepared submission that clearly documents the employer’s good-faith conduct, any mitigating circumstances, and compliance with the ATO’s cooperation requirements.
From 1 July 2026, the way employers must pay superannuation changes fundamentally. Under ‘Payday Super’, employers will be required to pay superannuation guarantee contributions at the same time as salary and wages, on every payday, rather than quarterly. The contributions must reach the employee’s fund within seven business days of payday, and the superannuation guarantee charge will apply where they do not. Super will also be calculated on a broader ‘qualifying earnings’ base. For employers, this dramatically shortens the window in which an SG shortfall can arise and makes real-time accuracy in payroll and superannuation processing essential. Reviewing and upgrading your payroll systems ahead of 1 July 2026 is now an urgent priority, and a central part of managing SGC audit risk from here on.
The most effective way to manage SGC audit risk is to ensure that superannuation contributions are calculated correctly, paid on time, and properly documented. This means reviewing your payroll processes regularly, ensuring that all eligible workers are captured in your SG calculations, and making contributions by the quarterly due dates without exception.
If your business has historic SG payment issues, including late payments, underpayments, or workers who may have been incorrectly excluded, addressing this through a voluntary disclosure before the ATO initiates an audit is strongly advisable. Contact Australian Tax Experts to discuss your options.
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