With the new financial year just around the corner, it’s time to understand what will change and how this will affect you and your business.
This year there are three changes that effect business and another four changes centred around Superannuation.
Super guarantee rate increase to 10%
On 1 July 2021, the Superannuation Guarantee (SG) rate will rise from 9.5% to 10%.
The 0.5% increase does not mean that everyone gets an automatic pay increase, this will depend on individual employment agreements.
- Base rate plus superannuation – the employee take home pay will remain the same and the superannuation fund will benefit from the increase.
- Total remuneration basis (base plus SG and any other allowances) – employee take home pay might be reduced by 0.5% so a greater percentage of the total remuneration will be directed to the superannuation fund.
To avoid the superannuation guarantee charge penalties, employers will need to ensure that they pay the correct SG amount in the new financial year – first quarterly payment at the increased rate will be due 28 October 2021.
Superannuation salary packaging arrangements will also need to be reviewed – employers should ensure that the calculations are correct and the SG rate increase flows through.
Employers also need to be prepared for 0.5% annual rate increases from the 2021-22 financial year onwards. Please refer to the table below.
Annual superannuation guarantee rate changes
New stapled superannuation employer obligations for new staff
When an employer hires a new staff member, the employee is provided with a Choice of Fund form to identify where they want their superannuation to be directed. If the employee does not identify a fund, the employer directs their superannuation into a default fund.
From 1 July 2021, where an employee does not identify a fund, legislation before Parliament will require the employer to link the employee to an existing superannuation fund. That is, an employee’s superannuation fund will become ‘stapled’ to them. An employer will not simply be able to set up a default fund, but instead will be required to request that the ATO identify the employee’s stapled fund. If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement.
Legislation enabling this measure is currently before the Senate.
Single touch payroll reporting
Single touch payroll will apply to most businesses from 1 July 2021. This will include small businesses (those with 19 or fewer staff) and businesses with closely held employees (e.g. directors of family companies, salary and wages for family employees of businesses). No further extensions will be granted.
For employers with closely held employees, there are some concessions on how reporting is managed with the option to report one of three ways:
- reporting actual payments in real time,
- reporting actual payments quarterly, or
- reporting a reasonable estimate quarterly.
These concessions allow a level of flexibility in relation to determining and making payments to closely-held payees. However, if your business is impacted, it will be important to plan throughout the year to prevent problems occurring at year end.
Indexation increases contribution caps and the transfer balance cap
Indexation ensures that the caps on superannuation that limit how much you can transfer into super and how much you hold in a tax-free retirement account, remain relevant by making pre-determined increases in line with inflation. To trigger indexation, the consumer price index (CPI) needs to reach 116.9. Australia reached 117.2 in December 2020 triggering increases to the contribution and transfer balance caps from 1 July 2021. The next increase will occur when a December quarter CPI reaches 123.75.
Concessional and non-concessional contribution caps
From 1 July 2021, the superannuation contribution caps will increase enabling you to contribute more to your superannuation fund (assuming you have not already reached your transfer balance cap).
The concessional contribution cap will increase from $25,000 to $27,500. Concessional contributions are contributions made into your super fund before tax such as superannuation guarantee or salary packaging.
The non-concessional cap will increase from $100,000 to $110,000. Non-concessional contributions are after tax contributions made into your super fund.
The bring forward rule enables those under the age of 65 to contribute three years’ worth of non-concessional contributions to your super in one year. From 1 July 2021, you will be able to contribute up to $330,000 in one year. Total superannuation balance rules will continue to apply. However, if you have utilised the bring forward rule in 2018-19 or 2019-20, then your contribution cap will not increase until the three year period has passed.
Transfer balance cap – why you will have a personal cap
As the name suggests the transfer balance cap (TBC) limits how much money you can transfer into a tax-free retirement account. From 1 July 2021, the general TBC will increase from $1.6m to $1.7m – but not everyone will benefit from the increase.
From 1 July 2021, there will not be a single cap that applies to everyone. Instead, every individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances.
If your superannuation is in accumulation phase before 1 July 2021, then your cap will be the fully indexed amount of $1.7m.
However, if you have started taking an income stream (pension), you have retired or are transitioning to retirement, then your indexed TBC will be calculated proportionately based on the highest ever balance of your account between 1 July 2017 and 30 June 2021. The closer your account is to the $1.6m cap, the less impact indexation will have.
For anyone who reached the $1.6m cap at any time between 1 July 2017 and 30 June 2021, indexation will not apply and your cap will continue to be $1.6m. For example, if you are transitioning to retirement and drawing a pension, and your highest ever balance in your retirement account was $1.2m, then indexation only applies to $400,000 (the $1.6m cap less your highest very balance). In this case, your new personal TBC will be $1,625,000 after indexation.
The Australian Taxation Office (ATO) will calculate your personal TBC based on the information lodged with them (this will be available from your myGov account linked to the ATO). If your superannuation is in retirement phase, it will be very important to ensure that your Transfer Balance Account compliance obligations are up to date. For Self-Managed Superannuation Funds (SMSFs), it is essential that you let us know about any changes that impact on your transfer balance account, for example if a member of your fund retires.
The total super balance caps to utilise the spouse contribution offset and the government co-contribution will also be lifted to $1.7m in line with indexation.
Minimum superannuation drawdown rates
The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year until 30 June 2022.
How can Walsh Accountants help you?
If you need some assistance to help you understand how these tax updates will affect your business or your self-managed superannuation fund, the team at Walsh Accountants are able to assist.