Super guarantee increases to 11%

15 July 2023

The increase to the superannuation guarantee (SG) rate from 1 July 2023 will see more employees (and certain contractors) entitled to additional SG contributions on their pay. But what happens when income earned before 30 June is paid after 30 June 2023 – will employees be entitled to the higher SG rate of 11%?

SG is based on when an employee is paid

On 1 July 2023, the SG rate increased from 10.5% to 11%. In some cases, an employee’s pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all ordinary time earnings (OTE) that are paid on and after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

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How to claim an early tax deduction on SG contributions

24 June 2023

Are you an employer who needs to make superannuation guarantee (SG) contributions for your employees? If so, it may be worthwhile bringing forward these SG contributions to before 1 July to benefit from a tax deduction this financial year.

However the timing of when SG contributions are deductible to an employer can be tricky if employers pay SG contributions for their employees via a superannuation clearing house (SCH).

Recap – what is a SCH?

The ATO’s free Small Business Superannuation Clearing House (SBSCH) is the only ‘approved’ clearing house – none of the many commercial clearing houses have this status. The SBSCH is a free service that small businesses with 19 or fewer employees, or an annual aggregated turnover of less than $10 million, may use to make superannuation contributions to employees.

The SBSCH aims to reduce compliance costs for small business employers by simplifying and streamlining the process of making employee superannuation contributions, by allowing employers to make a single lump payment of their contributions to the SBSCH each quarter. That lump sum payment is broken into individual payments by the SBSCH, and then contributed to each employee’s respective super fund or RSA.

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Employee or contractor? – the Federal Court weighs in

13 May 2023

A recent Federal Court case has highlighted important superannuation guarantee (SG) implications for businesses that engage certain types of contractors.

Background facts

The case of Jamsek v ZG Operations Australia Pty Ltd (No 3) [2023] FCAFC 48 (24 March 2023) concerned two truck drivers who previously drove delivery trucks for a company, ZG Lighting, and its related and predecessor companies for just under 30 years. The drivers provided their services via a partnership with their spouses.

The drivers commenced proceedings against ZG Lighting claiming they were employees for the purposes of section 12(3) the Superannuation Guarantee (Administration) Act (1992).

In the first appeal decision more than two years ago, the Federal Court held that Mr. Jamsek and his colleague Mr. Whitby were employees of ZG Lighting within the ordinary, common law, meaning of that term.

The court, in the first appeal decision, did not consider whether the ‘expanded meaning’ of employee in section 12(3) applied.

The expanded meaning provides that “if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract”. 

On appeal, the High Court held that the workers were not employees within the ordinary, common law meaning of that term and remitted the matter back to the Federal Court to determine whether Mr. Jamsek and Mr. Whitby were ZG Lighting’s employees within the expanded meaning in s 12(3). That is, were the two workers engaged under contracts that were wholly or principally for their labour? If yes, then an SG obligation arose. That was the question that the Federal Court turned its mind to in March 2023.

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Super in 2023

18 March 2023

Already rolling into March…2023 is flying by!

From a superannuation standpoint, following are just some of the changes you can expect this year:

Super guarantee increase

Employers face an increase to their SG liability this year. The rate of SG will increase from 10.5% to 11% from 1 July 2023, before gradually hitting 12% on 1 July 2027.

SG is payable on ordinary time earnings (which therefore excludes overtime payments) and may be payable to contractors as well as employees. A liability to a contractor will arise where the contract they work under is wholly or principally for their labour or skills.

The increased rate of 11% will need to be applied to any payments of ordinary time earnings made on and after 1 July 2023, even if some or all of the relevant pay period relates to work performed before 1 July.

A cap to end all caps

As  was announced on 28 February by the current government, a cap on the amount you can have inside superannuation taxed at 15% (not just in a tax-free retirement account) may be imminent. At present, the amount of super on which earnings are taxed at just 15% is unlimited. The government has announced that this 15% rate of tax will be limited to $3 million. Earnings on amounts exceeding that, will be taxed at 30% from 1 July 2025, the government has announced. However, even  if this cap finds its way into law,  99.5% of individuals will not be impacted as they hold less than $3 million in their super fund

An extra $200,000 into super this year

Although indexation has adversely contributed to the cost of living, it does have a superannuation upside!

The massive 7.8% inflation rate has triggered what’s called a double indexation in super – and means that the amount of money that can be put into tax-free super is going to turbocharge super contributions.

From July 1, the amount an individual can have in super where the earnings are tax-free when commencing retirement phase will jump from $1.7 million to $1.9 million. This is a significant change – the tax-free limit has only moved higher once since it was introduced in 2016 (moving by $100,000, from $1.6 million to $1.7 million). The $200,000 increase is a formality unless the government announces an indexation freeze in the upcoming May federal budget.

Reduction in downsizer eligibility age

The eligibility age for downsizer contributions reduced from 60 to 55 years from 1 January 2023. This means if you are age 55 or older, you could invest the proceeds of the sale of your family home to your superannuation outside of your standard contribution caps.

Downsizer contributions

From 1 January 2023, if you’re aged 55 years or older you may be eligible to make a downsizer contribution of up to $300,000 (or $600,000 for a couple) to your superannuation fund from the proceeds of the sale of your home where specific requirements are met.

Downsizer contributions can be a great way of boosting your superannuation after retirement. As well as the extra capital they introduce, the contributions can also earn investment income that is either tax-free if you commence an income stream with the funds or be taxed at a concessional tax rate of as low as 15% whilst in accumulation phase.

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Single member SMSFs

4 December 2022

From 1 July 2021, the law was changed to allow for six-member SMSFs (up from five members). At the time of writing, the uptake has been slow so far with just 228 funds with six members. At the other end of the spectrum, it is permissible to have single member funds. The main advantage of doing so is that you have total control over your retirement savings, and the investment decisions in respect of those savings. However, there are some issues to be mindful of.

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Bridging the super gender gap

27 November 2022

Fresh statistics released by the ATO reveal that the superannuation gender cap is very real.

While the average super balance for a man is $161,834, for a woman it’s $129,506 – a massive 25% difference. This gender gap begins in peoples’ twenties, mostly caused by wage differences and time off for children, and by their early thirties it is already 20%. A man aged 30-to-34 has an average super balance of $48,603 and a woman $40,479, the ATO data shows. The compounding impact of this difference alone over time is significant.

There are at least three key strategies that can be implemented to help close this gap.

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SMSF member obligations

16 October 2022

A recent Administrative Appeals Tribunal decision reminds us all that SMSF trustees (members) can be disqualified where serious breaches, be they advertent or inadvertent, of the super rules are committed.

One of the ways the ATO deal with non-compliance is by disqualifying an individual as a trustee (or director of a corporate trustee) of a self-managed super fund (SMSF). This can occur if the trustee does not comply with super laws or if the ATO believe a trustee is not a “fit and proper person” to continue managing their SMSF. Between 1 April 2022 and 30 June 2022, the ATO disqualified 80 trustees, resulting in a total of 252 disqualified trustees during the 2021-2022 financial year.

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Salary sacrificing to super

28 August 2022

Are you an employee thinking of putting some of your pre-tax income into superannuation to boost your retirement savings? This is known as salary sacrifice, and the good news is that it can benefit you and your employer.

What is salary sacrifice?

An effective salary sacrifice agreement (SSA) involves you as an employee, agreeing in writing to forgo part of your future entitlement to salary or wages in return for your employer providing you with benefits of a similar value, such as increased employer superannuation contributions.

Contributions made through a SSA into superannuation are made with pre-tax dollars and do not form part of your assessable income.

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