High Court rules superannuation guarantee constitutional, but Roy Morgan Research warns of impact on businesses

The High Court has affirmed that employers can be charged for not providing the right level of superannuation to employees, rejecting an argument by market research firm Roy Morgan Research that the superannuation guarantee charge was unconstitutional.

Roy Morgan had argued that the superannuation guarantee charge – the super guarantee amount plus interest, which is levied to employers which have not paid the prescribed amount of super – was not a tax because it was for the “private and direct benefit” of the employee rather than for “public purposes”.

But the High Court yesterday found that the “submission by the appellant that the charge is invalid because the legislation confers upon employees a ‘private and direct benefit’ cannot be accepted”.

“It is settled that the imposition of a tax for the benefit of the Consolidated Revenue Fund is made for public purposes,” the court found.

“That is not to say that the receipt of funds into the Consolidated Revenue Fund conclusively establishes their character as the proceeds of a tax. But it does establish in the present case that the charge is imposed for ‘public purposes’ and thus, if other necessary criteria are met, as they are in this case, the charge is a valid tax.”
 
The Government welcomed the unanimous ruling, with Assistant Treasurer Bill Shorten saying the charge was “introduced to encourage employers to pay their employees’ superannuation on time”.

“It also makes sure employees are compensated appropriately if their employer is late paying their superannuation,” Shorten says.

“The SGC plays an important role in the integrity of our superannuation system and I am pleased to see it will be maintained under this High Court decision.”

The case relates to a super guarantee charge imposed on Roy Morgan in 2007 after the Tax Office ruled that contractors who conducted interviews for the company for the six years to 2006 were in fact entitled to superannuation.

Roy Morgan chairman Gary Morgan said the High Court had “interpreted the law, which is a crazy law” and the ruling would have widespread ramifications for Australian businesses which hire contractors and participate in the cash economy.

Morgan said its own research showed that 50% of contractors don’t take out super and the ruling in effect made employers responsible for this.

“If that person doesn’t take out super, you’re liable,” Morgan told SmartCompany this morning.

He argues the onus should be on the contractor to ensure they are making super payments, rather than the employer.

Shorten’s office would not be drawn on Morgan’s calls for contractors to be held responsible for super payments.

Morgan said he was talking with the Taxation Office about the issue, which relates to “a few million” dollars.

“As of today Wayne Swan has got his budget surplus in place,” Morgan said.

“There are hundreds of companies who will have to do this.”